Good morning, everyone and happy New Year to you all, if I haven’t already had the opportunity to wish you this in person.
And what a start to the year it has been! The ‘Battle for the Atlantic’ is well underway, with markets on both sides of the pond trying to assert dominance over each other. Following on from its end-of-year success, the UK equity market continues to lead the way, moving us from the multi-year dominance of US markets and so many now are asking, is this the year of a UK equity renaissance?
So the questions now, are “why” and “for how long”?
To give a bit of colour to these questions, it’s probably a good idea to give context and so I’ve rolled back the chart above, to before the Great Financial Crash of 2008.
As you can see, the recent path of global returns has been utterly reliant upon US equities, due, in part, to the massive levels of liquidity, provided by Central Banks, because of the 2008 crash. These levels of liquidity doubled during the Covid pandemic, increasing the US Federal Reserve’s balance sheet to $9 trillion.
But all good things come to an end and, due to the success of the vaccine roll-out, an economic reopening and very positive employment data, there is no longer any justification for this support.
And so, the party is coming to a close. And let’s be honest everyone, it’s a much better idea to get a taxi at ten o’clock on a Saturday night so you can get home for Match of the Day, rather than wait until last orders and queue with everyone else at the taxi rank. You know it makes sense.
So, why are the UK and Europe, in this very short time period I must stress, outperforming?
Due to the massive performance of certain US stocks which have driven the market to phenomenal highs, their share prices look expensive on many different metrics. Against a backdrop of high liquidity and low-interest rates, this has been tolerated by markets and accepted by global investors.
However, this is now changing along with investors’ demands and, on a valuation basis, the UK and Europe look cheap. Buy low, sell high has returned.
Will this continue? The best way to hear more about my own views on this is to tune in to our next webinar. This webinar is free to attend and registration is quick and easy via this link. We hope to see you on January 27, 2022, from 10:30am – 11:15am.
And, on that cliff-hanger, I shall bid you all well and hopefully catch up with you soon…