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UK equities: Fear has peaked

David Kneale takes stock of the UK equity market, shining a spotlight on the valuation disconnect as inflation drivers turn negative, interest rate expectations decline and attention shifts to earnings forecasts.

In summary:

  • A barrage of crises through 2021/2022 triggered extreme outflows from UK equities.
  • UK valuations have become disconnected from global equities, in many cases falling below Global Financial Crisis levels despite the economic challenges being nowhere near as severe as those faced during 2008.
  • Share price performance has been unprecedented – since August 2021, 80% of UK shares have underperformed the FTSE All-Share Index; the majority have underperformed by more than 20%.
  • Valuations have not priced in this much fear for decades.
  • Yet inflation drivers are expected to be negative in 2023 and recession is more of a concern for the UK economy than its equity market.
  • UK businesses with strong balance sheets look well-placed for share price appreciation.




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