UK shares on “20 per cent discount to major markets”, says Kames Capital’s CIO

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The UK is trading at a 20 per cent discount to other markets following the uncertainty over Brexit, and could be boosted by bargain hunting from international investors keen to close the valuation gap, Kames Capital’s chief investment officer says.

Stephen Jones says that price to earnings ratios remain subdued in the UK, but with last year’s General Election result so emphatic and some of the uncertainty now clearing, he says UK assets could catch the eye of international investors looking for opportunities.
“Price/earnings ratios based on projected profits suggest that the UK market has cheapened by 14 per cent since the Referendum in 2016 while ratings across all the other major regions are around 5 per cent richer,” Jones says.
“Given the appropriate conditions, a valuation-led upswing is certainly possible as international buyers go shopping.”
Jones says signs that the UK is more popular with international investors are already in place, with sterling being the initial beneficiary of renewed appetite for UK assets.
“Our economy has laboured long under the burden of policy and Brexit uncertainty and it is to be hoped that an end to the Brexit impasse will unlock considerable pent-up economic and investor demand. Boosted by these prospects and with Brexit day now upon us there is a clearer path to realising this value in the UK.”
He adds the valuation opportunity is especially clear versus US equities, which have hit record highs in 2020.
“There is a general sense that UK assets have lagged world markets since the EU referendum,” says Jones.
“While true, this statement is more about the US than everywhere else; ignoring the all-conquering US equity market and from end May 2016, UK equities have matched World equities (ex the US) where the US has outperformed by 15 per cent.