International Investors lose Interest in British Stock Markets

For international investors, the UK stock markets are not even remotely attractive at present. Confidence is at rock-bottom since the time of the financial crisis. Underweight positions are the order of the day for Lyxor, BlackRock, State Street, and Deutsche Asset Management. Holdings of European portfolios are also less. This is the result of Brexit worries. Weak corporate earnings are also a major contributor. The sentiment among investors has been voiced by Michael Hartnett, the chief investment strategist of Bank of America Merrill Lynch. He said global fund managers now are extremely pessimistic about the British stock market. Better opportunities are now offered by the Eurozone, the United States, and even Japan.

Going down

An all-time zenith was attained by the FTSE 100 index in the middle of January. The numbers, however, have dropped about nine percent from that time. The retreat after that has confirmed the UK to be among the weakest performers in the world from the time the country gave its vote during June 2016 to exit the European Union.

The UK equities were regarded as the worst choice when a survey was conducted by Bank of America Merrill Lynch. The respondents were 163 managers tasked with administering global investment portfolios. They also oversee a massive $510 billion in assets. The UK stock market was found to be the least attractive when a total of 22 wide ranging asset classes and their regions were considered. The list included banks, bonds, cash, stocks, and technology. Also included were the American emerging market and Japanese equities.

Better than perception

The British equity market has delivered a sum total return of about 14.6 percent in the dollar terms, inclusive of dividends. In contrast, the US gave 36.4 percent and Germany 34 percent. For the UK, this all-around rejection is not the first in its financial history. The last time this occurred was in 1992 when the British Pound was thrown out from the exchange rate mechanism of Europe. According to Neil Woodford, a British fund manager, there is a consensus view that the economy of Britain is buffeted by real wage growth and inflation. Political uncertainty and Brexit issues are also major factors. He added that the economy is growing at the rate of two percent and much better than what is being forecasted. He said that there would be more investment spending and recovery in manufacturing. In short, things are actually better than what is perceived.

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