Are UK Stocks Good Value Investments?

There is greater potential for merger and acquisition activity in smaller companies and the lower sterling is likely to boost the appeal of U.K. companies to overseas buyers

Dan Kemp 31 October, 2016 | 9:45AM
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Brexit has profound inferences across all financial markets, but no more importantly than to those within the UK’s own borders. The trade and currency implications of Brexit are especially important in a market where the largest 100 publicly-listed firms export 72% of goods or services offshore, whereas mid-caps only export 41%.

All things considered, this would lead an investor to expect large companies to outperform under the influence of a lower sterling currency. Yet we find ourselves in a position where small companies are outperforming in a post-Brexit world, with performance numbers of 7.1%, 10.7% and 12.1% for large, mid and small companies respectively in the three months to September 30.

The question to ponder is: how does this make sense? While it would be foolish to ascribe short term price changes to any single fundamental cause, it is worth highlighting some of the factors that are likely to contribute to out-performance of smaller companies.

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Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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