U.K. stocks are looking particularly attractive after a fresh bout of market volatility, according to the chief investment officer of financial firm Wren Sterling. Global stocks have recovered from a turbulent start to the month, with the slump blamed on fears of a U.S. recession , signs of exhaustion in the artificial intelligence trade and the rapid unwinding of yen-funded ” carry trades .” The bounce back has tempted some investors to tiptoe back into shares of U.S. tech giants, although strategists have warned that markets could yet be vulnerable to further turmoil. It is in this context that Wren Sterling’s Rory McPherson believes British stocks look “cheap” and “under-owned.” McPherson told CNBC’s ” Squawk Box Europe ” on Tuesday that the U.K. market, which he described as “ripe for dividends,” had posted some “fantastic” earnings in the run-up to the early August sell-off . He cited banks as among those to have beaten expectations. When asked whether investors should consider U.K. stocks as part of a shift away from U.S. tech companies, McPherson replied, “Well, we think so. I mean you look at the market like the U.K., it’s on 12 times earnings, its cheap, its under-owned. Amazingly, data came out last week showing 37 consecutive months of outflow from UK equity funds, so it is still an outflow.” He added, “You look at the economy, its growing strongly. The consumer has got a savings rate over 11% and the companies are buying back their stock, they are not trading on a challenging valuation and we’re on course to have the first positive quarter of earnings growth in a year on the FTSE 100. So, that’s a positive backdrop for the U.K.” McPherson said some investors had already been tempted to rotate back into U.S. tech stocks after “some wind was taken out of the sails” of elevated valuations but, in his view, “they are still trading on pretty challenging multiples ⦠and still make for a very concentrated trade.” Analysts have recently turned bullish on U.K. stocks, which had been unpopular for years. The BlackRock Investment Institute an arm of U.S.-based investment firm BlackRock, said in early July that it believed “a tactical case” could be made for U.K. stocks given “perceived political stability.” The U.K.’s center-left Labour Party secured a landslide election victory on July 4, taking over from the center-right Conservatives after 14 years. Looking ahead, McPherson told CNBC that consumer prices could reach 2.5% by the end of the year, significantly above the Bank of England’s target of 2%, but such a prospect should not deter the central bank from cutting interest rates. Data published Wednesday showed U.K. inflation came in at 2.2% in July, slightly below expectations, albeit above the 2% readings in both May and June. Earlier in the month, the Bank of England delivered its first interest rate cut in more than four years, taking the key rate to 5%.
Source Agencies
