The UK is out of fashion for investors – but sentiment could be about to turn
The UK’s service-oriented economy has been particularly hard hit by lockdowns but, as we saw last summer, it bounces back fast when the brakes come off, writes Hamish McRae
Big money did not like Brexit. Global investors have shunned the UK since the referendum, cutting the share of UK assets in their portfolios, and driving down the sterling exchange rate. On 23 June 2016, the day when the British public voted to leave the EU, sterling was valued at $1.49. It has not been anywhere near that since, spending most of the intervening period in the $1.20 to $1.30 range. Even as the trade deal was announced on Christmas Eve, it stood at only about $1.35.
So the question now is how quickly confidence will return, not just in sterling but in UK assets more generally. Or, for the pessimists, will it return at all?
It is a complex question because the settlement with Europe is only one of several factors in the equation. The pace of recovery from the Covid crisis is more important and, in terms of share prices, so is the attitude of investors towards what are called “value stocks”: the banks, pharmaceuticals, the big energy and resources companies, the supermarkets, and so on. The FTSE 100 index is overweight in these basic enterprises, while it has very few hi-tech companies – the so-called “growth stocks” – basically because nearly all of them are American.
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