UK Stocks Cheaper than US, China and Mexico

UK stocks are unloved, reasonably cheap, and fundamentally resilient. Morningstar Investment Management looks past Brexit

Tanguy De Lauzon 17 August, 2018 | 12:41PM
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With Brexit continuing to be a major fundamental risk to the economic and equity market outlook, nervousness is taking hold and outflows are persisting. This comes at a sensitive time as some economists predict an impending global downturn, often citing trade wars, a global housing slump, high household debt, an inverted yield curve in the US and cyclically-high corporate profits.

But, we believe true investment risk is a function of three key inputs: valuations – overpaying for an asset, fundamentals – asset quality deteriorates, and financing – gearing, redemptions, crowded trades.

Let’s bring this to the present discussion, where we find UK equities to be somewhere between 30% to 45% cheaper than the US market on a combination of valuation metrics. Asset quality in the UK has a long history of durability, and we see no evidence of change. Leverage is under control and below pre-crisis levels. Plus, excitedly for our contrarian hearts, it is one of the least crowded trades in the marketplace.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Tanguy De Lauzon  is Head of Capital Markets & Asset Allocation for Morningstar Investment Management EMEA