Extremely low valuations, a strengthening pound, and strong performance this year—Goldman Sachs: Buy UK equities!

On September 2, Goldman Sachs analysts Sharon Bell and her team released a report stating that UK equities have performed well this year, benefiting from multiple factors including low valuations, a strong pound, robust UK economic growth momentum, and policy tailwinds for the stock market. Over the past decade, UK equities have consistently underperformed: the FTSE 100’s average annual total return stood at 6%, compared with 8% for the Euro Stoxx 50 and 13% for the S&P 500. Consequently, the UK’s weight in the MSCI World Index has declined from 5.3% in 2010 to just 2.2% today. Goldman Sachs attributes this prolonged underperformance partly to weak corporate earnings—but more significantly to massive investor outflows, which have driven UK equity valuations sharply lower. Additional factors behind disappointing UK equity returns include the country’s lack of large listed technology firms, political turbulence following the 2016 EU referendum, and domestic investors’ reluctance or inability to invest in homegrown equities. Specifically, Goldman Sachs highlights eight positive catalysts for UK equities: 01. UK equities are among the best-performing assets so far this year. Year-to-date, both the FTSE 100 and the FTSE 250 (the mid-cap index) have outperformed most other global indices and asset classes. Does this signal a strong UK equity comeback? Goldman Sachs believes portfolios are well positioned to add UK equities—given their low prices, high shareholder returns, and the UK’s ongoing economic recovery, which particularly benefits mid-cap stocks. 02. UK equities are defensive and less exposed to trade flow disruptions. Unlike the US market—characterized by high valuations and concentration among mega-cap tech stocks—the UK market lacks large tech names but boasts substantial exposure to deeply value-oriented sectors (financials, energy, mining), as well as significant weightings in healthcare and consumer staples. Moreover, the UK economy is less reliant on manufacturing, making it overall less vulnerable to trade-related restrictions than other European markets. This gives UK equities—especially the FTSE 100—strong defensive characteristics. During the broad market selloff in August, the FTSE 100 performed exceptionally well. 03. Improving UK macroeconomic conditions benefit the FTSE 250 and retail sector. Recent UK macro data has been encouraging. Thanks to a marked improvement in service-sector activity, the UK composite PMI rose to 53.4—significantly above expectations. The FTSE 250 typically performs strongly when the PMI improves, especially when it rises above 52 or 53. Meanwhile, UK consumer confidence has risen—and stronger consumer sentiment tends to correlate with outperformance by retailers. Additionally, UK GDP grew 0.6% quarter-on-quarter in Q2—twice the pace of the eurozone—and Goldman Sachs economists forecast further quarterly growth of 0.35% in both Q3 and Q4.

‘Slow and steady upward climb’: the UK stock market

Since April, global equities have declined amid delayed US rate-cut expectations and the Israel–Iran conflict—particularly hard-hit were Asian markets (Japan, India, Vietnam). US equities also dipped briefly, though they have nearly fully recovered. Yet the three European countries often derisively dubbed by Chinese retail investors as the ‘Three Fools of Europe’—the UK, France, and Germany—have demonstrated remarkable resilience amid this uncertainty: France has rebounded to its all-time high; Germany had already done so—and even set a new record high; while the UK has shown even greater strength, barely declining at all and instead advancing steadily in a ‘slow-and-steady upward climb,’ reaching a new all-time high. Shi Xing Chuan (‘Star-Picking Vessel’) published an article on November 2, 2023, titled ‘Star-Picking Vessel Travels the World: Is Britain Truly in Decline? How Powerful Is the Former Empire of the Sun Never Setting?’ The piece introduced UK investment products accessible to domestic investors—reducing from two funds to one—and covered the FTSE 100 Index and its representative companies. It also highlighted Britain’s historical contributions to human civilization and its current capabilities. Collectively, these points offer a broad, albeit preliminary, overview of Britain’s politics, economy, and culture—the very foundations underlying stock market performance. If you read that article and bought the fund the next day, you would have earned approximately 15% over the subsequent six months. This article sets aside deep-rooted political and economic fundamentals, focusing solely on the drivers behind the UK stock market’s rally over the past six months—and reveals that the UK currently faces challenges strikingly similar to those confronting the US.

UK Midcap Index Hits Record High Ahead of Bank of England Rate Call

18 hours ago

The UK FTSE 250 reached a record high while the FTSE 100 rose ahead of the Bank of England's expected rate hike. Sector performance varied, with precious metal miners surging on gold prices while Hikma Pharmaceuticals fell after lowering its profit forecast.

reuters

2026-11-05

UK Midcap Index Hits Record High Ahead of Bank of England Rate Call

UK Midcap Index Hits Record High Ahead of Bank of England Rate Call

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