With shares dirt cheap, is the UK the land of opportunity?

A forbidden zone or a land of opportunity? That’s the question investors are asking about the UK this weekend.

Is this the time to be greedy when others are fearful and see Britain as a bargain bet, even against the backdrop of chaos in government bond markets? Rising bond yields, driven by growing doubts about the government’s economic management, have decreased the likelihood of interest rate cuts in the coming months.

Many investors have already voted with their feet. In 2024 a net £9.6 billion was withdrawn from UK funds.

Behind this exodus lies the fear that the profits of British companies will be reduced by the increase in the minimum wage and increases in national insurance.

In recent days, Marks & Spencer and Next were among retailers citing the adverse impact of these Budget 2024 measures.

British companies are perceived to be cheap, trading at an average of around 12.6 times earnings, compared with 24.2 times in the United States.

Putting money into the market at this level makes sense because, as Dan Boardman-Weston, CEO of BRI Wealth Management, reminds us, “the price you pay for an investment is the most important determinant of long-term returns.”

This perception that bargains abound could lead to a repeat of the merger mania of 2024. Nearly 20 FTSE 250 companies were the subject of bids.

Stuart Widdowson, co-director of the Odyssean investment fund, which specializes in smaller companies, says: “We believe UK shares, especially those of smaller companies, remain underappreciated.” An improvement in sentiment could reverse the fortunes of these stocks. But in the absence of such a change, Widdowson maintains that UK companies will remain “for sale”, with more acquisition proposals emerging abroad.

In the long-term interests of our economy, the Government should, of course, take steps to stop the contraction of our stock markets, including abolishing the stamp duty payable on trading in shares; there is no such tax in the United States.

But while chancellor Rachel Reeves is expected to introduce reforms, here are ways to pick up bargains on UK markets.

BIG NAME STOCKS

Dismay at current government policy may be deterring you from taking a stake in UK plc. But, as Jack Roberts, an analyst at asset manager IBOSS, points out, British companies are not just local players: they are industry leaders with substantial global exposure.

It says: “FTSE 100 companies earn 74 per cent of their revenue from abroad, while FTSE 250 companies, more focused on the domestic market, generate around 51 per cent of their sales internationally.”

Amid the focus on budget tax increases and apprehension over a global trade war triggered by President-elect Donald Trump’s possible tariffs, Imran Sattar, manager of the Edinburgh investment fund that has stakes in Shell, Tesco, Dunelm, Rightmove and NatWest, says these companies have made “excellent strategic, operational and financial progress” over the past two years.

Aerospace giant Rolls-Royce was another 2024 star, whose shares soared almost 90 per cent last year to 582p, boosted by its recovery from the pandemic.

If you want exposure to the full range of UK plc, Fidelity Special Situation and Liontrust UK Growth are rated best buy funds by three or more of the investment platforms. Check the online fact sheets of trusts such as City of London, Law Debenture and Merchants to see if they invest in businesses you don’t own directly or through other funds and trusts.

BRITISH TECHNOLOGY

The focus on Silicon Valley tech titans means hugely innovative British companies in the sector can be overlooked.

But Bank of America has chosen the London Stock Exchange Group as one of its 25 stocks for 2025, seeing increased demand for the company’s data and analytics services. The price of the £60.58bn FTSE 100 business rose 30 per cent last year to 11,622p, but Bank of America has raised its target to 13,000p.

The Augmentum Fintech trust represents a bigger bet on UK technology because its shares are at a 37 per cent discount to their net asset value, although it backs challenger banks such as Tide and Zopa.

The trust’s boss, Tim Levene, maintains there is a “significant disconnect” between the trust’s investment income growth and its share price.

SMALLER COMPANIES

Venturing into smaller ventures carries a high element of risk at any time. But it could be a potentially rewarding experience in this stressful period.

The Odyssean Trust share price is at a negligible discount of just 0.38 per cent to its net asset value, suggesting there is a belief in some quarters that microcap stocks could provide some thrills. Rockwood Strategic has a discount of just 1 percent.

Some investors appear to believe that these companies could attract the attention of an acquisition suitor or flourish into companies that provide growth and create new jobs.

Supporting Britain may take a lot of courage right now. However, I am not fleeing from these markets: I am aware of the dangers, but I also hope to find some excitement.