British stocks have rallied strongly, since the major low in March 2020, when the Covid-19 stock market crisis reached its peak. Still, with a gain of “only” 52% over the period, the FTSE 100 is poor, compared to a CAC 40 which has more than doubled. It must be said that British equities remain weighed down by fears related to Brexit (political and economic risks), among others.
“The British economy is expected to slow sharply in 2022, with a growth decline of around 2.5%: it should drop from 7.1 to 4.5% according to our estimates at Pictet Asset Management. And the long-term effects of Brexit are already being felt ”, notes Frédéric Rollin, investment strategy advisor at the Geneva-based management company. “Labor shortages and the lack of trade deals are weighing on long-term growth prospects and pushing inflation up. However, we believe that the British large caps should do well ”, underlines the expert.
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On the one hand, the valuation levels are modest: 12.5 for the PER ratio (market capitalization compared to the estimated profits of listed companies over 12 months), against 18.5 for global equities (based on the Footsie 100 and from MSCI World, data as of January 5).
On the other hand, “large British stocks are mainly exposed to global growth. The Footsie 100 is the most international of the major benchmarks of developed countries. As global activity should remain solid, the earnings growth of these companies will be little affected by the British slowdown ”, argues Frédéric Rollin.
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“If the political risk is overestimated, there is something to play on the British market”, adds analyst Valentin Aufrand, member of Afate, who underlines that “the valuation gap between British and European multinationals n ‘has never been so important since at least 2006 ”.
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