Britain’s stock market is tipped to outperform US and EU benchmarks this year as money managers across the City predict a bounceback for the unloved assets.
British equities will deliver 9pc returns over 2024, Goldman Sachs has predicted, beating projected returns from the S&P 500, leading eurozone markets and Japanese stocks.
Over the next five years the Wall Street bank expects average annual returns of 6pc from UK stocks, which is among the highest returns of all asset classes looked at.
It would represent a significant turnaround for Britain’s stock market, which has traded at a steep discount to rivals in recent years.
Brexit, political instability, pension funds turning their backs on the stock market and Britain’s slow recovery from the economic blow of the pandemic have all been blamed.
However, investors say a combination of significant value on offer from cheap British stocks, declining inflation and richly valued share prices elsewhere all mean the UK market is poised for a comeback.
Gervais Williams, head of equities at asset manager Premier Miton, said: “I’m more bullish now than I’ve been for 30 years.”
Patrick Thomson, European chief executive of JP Morgan Asset Management, told The Telegraph: “There are more opportunities in the UK.”
Stock markets in the US and elsewhere are “very fully valued”, he said. By contrast, British stocks are “probably not as fully valued,” meaning there is more scope for share prices to rise.
He added that the relative unpopularity of British stocks was also part of the appeal: “That for us as investors is an opportunity because it means that there is something that potentially people are missing.”
JP Morgan Asset Management has more than $2.4 trillion (£1.9 trillion) in assets under management.
Adrian Gosden at Jupiter Asset Management said a rise in share buybacks and a tailing off in pension funds selling stocks would also support British stocks.
Mr Gosden said: “Pensions and insurance companies have been selling UK equities for a long time because they’ve been told to immunise the pension portfolios. That has now gotten to a point where they haven’t got that much left. Their allocation to the UK is virtually zero.
“On the other side, there are nearly £60bn of shares being bought every year by the UK companies themselves in buybacks. That will cause an inflection point we think sometime this year.”
Britain’s stock market is also dominated by companies that are very sensitive to interest rates, such as banks, miners and housebuilders.
This means that even small falls in inflation or interest rates can trigger a big surge in stocks.
Mr Gosden said: “When you get a move down in inflation people think that the economic outlook is going to be improved and will start to look towards the more technical elements in the stock market. That is what London has in abundance compared to some other markets.”
Economists are projecting sharp falls in inflation this year, with Dutch bank ING predicting the headline rate could fall from 4pc to 1.5pc by May or June.
Mr Gosden added that the UK market is “the cheapest it’s been in decades”.
Analysts also believe that the election risk in the UK is smaller than elsewhere. This is significant in a year when half of the world’s population is headed to the polls.
Mr Williams at Premier Miton said: “Both parties are relatively centrist. In contrast to many of the other elections going on this year, actually the UK market, in terms of electoral risks, is fairly low.”
Despite the optimism in the City, the London Stock Exchange has continued to underperform relative to rivals so far this year.
The FTSE 100 is down 3.5pc since the start of January, compared to a drop of 2.2pc for France’s benchmark Cac 40 and a 1.2pc fall for the German Dax. The S&P 500 has risen 1.5pc over the same period.
