He says: “One might question if the same investors avoiding the UK are ignoring major issues in their own backyards: the US/China trade war, weakening growth in Europe, the limits of central-bank intervention and moves to impeach President Trump are just a few.”
Contrasting these with the UK’s Brexit troubles, he emphasises: “It is not very pretty elsewhere.”
Regardless of what is happening elsewhere in the world, the outlook for UK companies is not necessarily one of unremitting doom and gloom anyway.
Tineke Frikkee, head of UK equity research at Waverton Investment Management comments: “Whilst the ultimate impact of Brexit is uncertain and may remain so for a number of years, it is highly probable that the majority of UK listed companies will get through these turbulent times.”
Buying opportunities
So, what about valuations? If these are depressed, what is the view on buying opportunities?
Ms Frikkee perceives some possibilities, as she explains: “Both large and mid-sized companies are on a price/earnings (P/E) ratio of 12x, with a 5 per cent and 3.9 per cent dividend yield respectively.
“The P/Es of the indices are not at 2008/2009 levels (7.5x), but overall look attractive. Within these indices, many domestic UK companies have become very cheap, such as retail, housebuilding, leisure, property, banking and insurance, but also global cyclical sectors such as mining and oil and gas.
“For those investors that can withstand high volatility for the next six months or so, there are very good buying opportunities of decent businesses with balance sheets that can support dividend and free cash flow yields between 8 per cent to 10 per cent.”
James Illsley, Portfolio Manager for the JPM UK Equity Core Fund & JPM UK Equity Plus Fund also sees potential opportunity, as he explains: “Brexit has created a great deal of uncertainty which has led investors to persistently reduce exposure to the UK equity market.
“We would argue that this has created a once-in-a-lifetime valuation opportunity with UK equities looking extremely cheap compared to other equity markets and other asset classes. For example, the yield gap between the yield on 10-year gilts and the dividend yield of the UK equity market has only been wider around the time of World War I.”
Mr Illsley therefore suggests that market jitters could be excessive, as they observe: “We would argue the market is being far too fearful.
"Whilst Brexit is causing uncertainty, it is hardly comparable to the World War I era and therefore we see a fantastic opportunity to invest in the UK.
“Further, the UK equity market is as cheap as it has been for 30 years when compared to the world equity market. We believe that any certainty on Brexit will lead to a reallocation to the UK and the valuation discount to close, driving strong returns for bold investors.”
