Global markets continued chugging along last week, with the MSCI All Country Index of global stocks returning +0.8% in GBP. A notable leader was the UK Equity market, which returned +1.5% as measured by the FTSE All Share Index. We continue to believe that the UK market could have significant room to run, having been neglected by global investors for many years. The re-opening of the UK economy continues apace, as borne out in Google’s mobility data. The less scientific measure of how difficult it is to book a pub garden right now, also supports this hypothesis.
Another interesting dataset we have observed is the excess savings accumulated by households during the pandemic. UK households are second only to the US in foregone consumption, at an estimated 10% of GDP. This compares to 6% for the world as a whole, 6.2% in Germany and 5.5% in France. As these savings are spent in the coming months, we expect this to give significant support to domestically-focused UK stocks. This also supports our view that Sterling Fixed Income remains unattractive, as a revival in economic growth is likely to lead to higher interest rates which are a negative for bonds.
Other global markets are a very mixed bag in terms of how attractive or unattractive they are to us right now. We have written many times in the past that elements of the US Equity market exhibit stretched valuations and heroic growth assumptions, although we have recently been adding small-cap value exposure which should benefit from the strong rebound in the world’s largest economy. Certain Fixed Income markets are also once again looking as if they are “priced for perfection” with the extra compensation paid to investors for holding investment grade and high yield corporate debt now roughly back to all-time lows. We think selectivity and remaining active in Fixed Income markets will be critical to client outcomes from this point.