Insights
By: John Veale
What is the outlook for UK equities?
Investors in UK shares have been facing significant challenges for some years now. Not only have markets had to contend with a global pandemic and a backdrop of ongoing geopolitical instability, but the UK has also been living through a good deal of local political uncertainty as well.
Despite all this, there is evidence to say that the UK market has sufficient value for us to hold on patiently to our equity allocation in UK businesses today.
Having suffered by far the deepest fall in economic activity out of the G8 economies during the pandemic in 2020, the UK is now experiencing the highest rate of inflation of the major economies. Post Brexit, there also remains the need for the UK to recalibrate to the loss of easy access to EU labour and its markets and to re-establish confidence in its own fiscal stability after the 2022 political hiatus.
Investors may first need to see the UK navigate the path through the current extreme inflation pressures. Nevertheless, even if this involves a period of recession, valuations in the UK equity market, at historic lows compared to other regions, are already discounting these challenges and much more. When markets correct for extremes they often move fast, leaving behind investors who had aimed to finesse their timing.
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