It’s not the first time a turnaround has been flagged for the UK market, but this time, it could be different.
- The sell-off of UK equities accelerated in April and May with IA data showing outflows of £996m and £1,362m
- BlackRock, Allianz, Ruffer and Rathbones have raised their exposure to the UK in recent months
- Morningstar data also shows increasing flows into UK mid-cap companies
The turnaround in the UK market has been flagged more than once. The market has looked anomalously cheap for years, even though the worst political uncertainty has long since passed, and the economy has tentatively revived. Investors have remained stubbornly negative on UK assets.
Far from decreasing, the sell-off of UK equities appears to have accelerated in recent months. The past two months of IA data showed £996m and £1,362m leaving the UK All Companies sector, the highest levels on record and even higher than the same months in 2023. This is in spite of improving performance from the UK stock market.
UK investors had, understandably, started to despair. Company management teams had started to buyback their stock, which had helped drive performance, but had failed to bring investors back to the market. Good UK companies were being picked off by international buyers, which threatened the long-term health of UK capital markets.
However, the IA data only goes up to May, and it appears there may have been a turnaround in sentiment since then. This may be a result of an emphatic result in the General Election, that could usher in an era of greater political stability and a more predictable business environment. It may also have been a response to the huge outflows in April and May, which suggested a capitulation point.
The Financial Times reports that large investors are positioning themselves for a revival, with BlackRock, Allianz, Ruffer and Rathbones, raising their exposure to the UK in recent months. Flow data from Bank of America shows institutional investors have turned from being net sellers to net buyers, while Morningstar data also shows increasing flows into UK mid-cap companies.
There are other encouraging signs. French media conglomerate Vivendi announced plans for a break up, and to list its TV business Canal+ on the UK stock exchange. This is a significant endorsement for UK capital markets over their European peers. Incoming Chancellor Rachel Reeves has also announced plans to continue and extend Jeremy Hunt’s plans to draw institutional investors back to the UK.
These are early signs, but they are the most optimistic signals in recent memory. It has been a long and difficult road for the UK stock market, but it is possible that a fight-back is imminent. UK investors could take heart.
