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Germany’s largest bank has praised the “remarkable” performance of the UK stock market and backed “the best of British stocks” to continue to outperform their European rivals in the coming months.
Deutsche Bank analysts said London’s FTSE 100 had outperformed the eurozone’s leading index by 10 percent since the beginning of April.
The report came as a chorus of experts also pointed to a brighter outlook for UK stocks.
The shift in sentiment follows a bleak period for London as plummeting valuations left companies vulnerable to foreign takeovers and prompted others to jump ship to list overseas.
Vote of confidence: Deutsche Bank experts said London’s FTSE 100 has outperformed the leading eurozone index by 10% since the beginning of April
Now, however, Britain is looking increasingly attractive, thanks in part to political stability following elections at a time when Germany, France and the United States are in turmoil.
Yesterday’s official figures added to the cheer by revealing that the economy grew by 0.6 percent in the second quarter.
Deutsche Bank experts now believe the FTSE 100 will outperform its European rivals in the second and third quarters of this year.
“The outperformance of UK equities has been remarkable,” they said, with the FTSE 100 performing 10 per cent better than the Stoxx 50 index of leading eurozone shares since the spring.
The report highlights the impact that post-Brexit political and economic concerns have had on UK equity valuations, creating a discount on those stocks that is now disappearing.
“Following the recent elections, the UK is now among the countries with the least political uncertainty in Europe while at the same time having similar growth prospects,” Deutsche said.
“The FTSE 100 is not only cheap relative to the rest of Europe, but also relative to its own history,” the bank added. British stocks are expected to be “among the winners” as investors reassess the outlook for economic sectors and regions.
Hugh Gimber, global market strategist at JP Morgan Global Asset Management, said the FTSE 100 was “starting to play out in a lot of scenarios… it’s not just a valuation story”.
In recent months, equity investors have focused their attention on booming US technology stocks. However, fears about rising US debt levels ahead of the presidential election could make UK stocks look like a good bet, Gimber suggested.
“The U.K. economy is in good shape. We’ve seen that this morning with the GDP and labor market data this week,” he told Bloomberg News.
Gimber highlighted Footsie’s mix of “defensive” stocks, including energy and healthcare, which are “not obvious elsewhere in the world”.
This comes after Britain’s latest growth figures, which suggest the economy has grown at the fastest pace in the G7 group of advanced nations this year, were added to data from the Office for National Statistics this week which revealed inflation remains close to its 2 percent target.
The data potentially paves the way for another interest rate cut by the Bank of England, while unemployment has fallen to 4.2 percent.
It has undermined the Labour government’s claims that the party has inherited the worst economic circumstances since the Second World War.
This week, a survey by Wall Street giant Bank of America revealed that the London stock market is now the top choice among European investors as sentiment towards the eurozone collapses.
And Amanda Blanc, chief executive of insurer Aviva, said on Wednesday: “There are many reasons to be positive about the UK, including greater economic stability and political certainty.
‘We’ve been all over the world talking to investors.
“They are much more interested in the UK now than they were two years ago.”
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