The rally is over and UK stock is still undervalued, says British wealth manager
The UK stock market is overvalued according to some analysts, and tech stocks could be more volatile in future as the FAANG stranglehold gets diluted by free thinkers
It was inevitable that the last week’s worth of trading on the UK stock market would have had its run of volatility once the tabloid newspapers had finished spouting their hyperbole about a supposed ‘vaccine’ for a supposed virus which is being used as a tool by European governments to hold citizens hostage in their own homes, which won’t be their own homes for much longer if these economic incompetents carry on as they are.
News trading is exactly that – currency and equities traders maximizing the opportunities presented by volatile market movements which are caused by kneejerk reactions to news broadcasts. By no means does trading the news mean that the news articles prove to be in any way correct, hence the market euphoria relating to several large pharmaceutical companies last week having claimed that they will be launching a vaccination which governments will buy en masse and potentially insist that their populations are subjected to, has died down along with these stories.
Today, it is evident that many experts in London have taken a pragmatic and sensible view, looking at the multi-asset trading environment through a very conservative lens.
One factor is that people’s behaviour has changed dramatically, and many countries have suffered severe social and financial shocks, however according to executives in London, the UK is among the developed markets which remains cheap, and it is being heavily tipped.
According to Rob Morgan, investment analyst at Charles Stanley Direct, investors continue to view the UK stock market with scepticism. This morning he told mainstream news sources that compounding the Covid-19 fallout, uncertainty surrounding Brexit fallout persists, weighing on share prices most notably in respect of smaller, more domestically orientated companies, and therefore there is value to be found for experienced stock pickers that can hopefully pick out the best of the opportunities.
Darius McDermott, Managing Director of FundCalibre’s view is that the UK stock market remains unloved, under-owned and under-valued even after the ‘vaccine rally’. He puts this down to ongoing Brexit uncertainty and its make-up – oil and bank heavy and light on tech.
‘Overseas companies are starting to take advantage of cheap stock prices by making cheeky bids for UK plc at rock-bottom prices,’ he notes.
Indeed, the energy sector is certainly a source of volatility, largely down to the lack of future of one of the world’s most constantly valuable commodities, that being crude oil. With demand for stock in battery companies as they advance their technology via research and development investment in order to establish methods of making batteries last longer – the single most important hurdle to overcome in order to make electric modes of transport more viable – many City analysts are beginning to consider oil to have no future at all as a valuable commodity.
Of course, it is a plentiful resource that is always extractable, but its value long term will face decline if electric power replaces it in transport the way it has done in the energy industry for domestic housing in Western nations.
Unlike in the energy sector, where oil prices moved sharply lower during the past few months, metals and other mined commodities have proved relatively resilient so far this year” said Matthew Roche, Associate Investment Director at Killik & Co. “We believe this sector will play an important role in the global energy transition (demand for batteries, network infrastructure) which is clearly now accelerating beyond previous expectations – yet sector valuations have derated relative to the broader market” he concluded.
With regard to UK stocks, Teodor Dilov, fund analyst at Interactive Investor, said “From a geographical perspective, UK equities have been underappreciated by the market for a while, however, this could be an excellent entry point for contrarian investors to buy high quality businesses at a discount and start building long-term positions in companies with diversified revenue streams and strong management profiles.”
Japanese stocks are on the radar of many UK wealth managers, some of which are managed at a fee of over 1.1% which is relatively high, but confidence in the Japanese market is high due to its stability, having not been affected by endless lockdowns and media hyperbole.
Those brave enough to go for technology company stocks may consider that there are many internet giants that have done well due to the home working and e-commerce dynamics that have resulted from the draconian stance of many Western governments since March, however with the big internet firms beginning to censor anti-lockdown sentiment and ban individuals from sites for merely stating their views, many large customers have been alienated and are looking to the smaller firms for their hosting and services.
Yes, the big publicly listed giants that even have an acronym for their collective stocks – FAANG – may well be the dominant ones now, but their internet dictatorship which extends to attempting a currency coup as well as censorship does not bode well with the sensible, free market orientated investor, hence there may be alternatives on the horizon with higher appreciating share values.