Entering the knockout stages of the World Cup, I thought it might be useful to undertake a half-time analysis of markets. Index returns have been positive year to date, with the S&P500 rising by around 8% and the FTSE100 by just over 5%. The dominance of technology as a theme remains in place though, with the Nasdaq Composite Index up 10%, although this is dwarfed by the near doubling of the South Korean Kospi Index thanks to its exposure to the likes of Samsung Electronics and other beneficiaries of the booming semi-conductor chip market.
Despite this, certain areas of the UK stock market still look a bit like the unfancied side: not flashy, not universally loved, but awkwardly effective. While global investors have spent years backing the same star names elsewhere, certain parts of London’s market have been left on the wrong side of the tournament hype, trading on modest expectations and, in many cases, modest valuations too.
The UK market’s discount has of course persisted for years, but investor neglect seems finally to be creating opportunities and in recent months we have seen a number of approaches both for businesses that you will recognise such as Tate& Lyle, EasyJet and Schroders and for others that aren’t maybe such household names such as Segro and Intertek. The thing that these have in common? They are all are being targeted by overseas investors.
So in tournament terms, the UK market may be seeded low but there is increasing evidence that it is not short of talent. Whilst longer term this may be bad news for the overall breadth of the UK market, if the bids keep coming, investors may finally discover that being an underdog can certainly have its advantages.
The value of securities and the income from them can fall as well as rise. Past performance should not be seen as an indicator of future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
