LIVE MARKETS Cheap UK Equities: Value Trap or Opportunity?
- European equities up 2%
- Technology and miners lead the gains
- Omicron’s worries fade
- Nasdaq Futures Gathering
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CHEAP BRITISH EQUITIES: TRAP OF VALUE OR OPPORTUNITY? (11:23 GMT)
Do you remember a year ago? The timing seemed perfect to get into the UK stock market. The reopening of the trade was in full swing thanks to the breakthrough of the COVID-19 vaccine and the FTSE 100 seemed to be the proxy of choice to take this train.
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The UK Blue Cheap Index ticked so many boxes: full of cheap cyclicals like miners, banks, finance companies, oil majors, etc.
Additionally, the rollout of the vaccine in the country was starting long before the rest of Europe and it was believed that Brexit hurdles would start to ease.
But so far 2021 rings a familiar bell with another year of underperformance.
Investing in UK stocks since the 2016 Brexit referendum has turned out to be a pretty disappointing deal compared to the rest of Europe or the US, even when you factor in currency fluctuations:
Following years of underperformance UK stocks are cheap, very cheap, and have been for some time now:
But while the FTSE 100 has a track record of a value trap, it is really too cheap to ignore.
As Liberum analysts pointed out in a note: “It is rare to find a market that is both cheap and growing rapidly, yet when you look at the global stock markets right now, the UK stock market is offering just that. “.
Alex Wright, portfolio manager at Fidelity, sees plenty of opportunities in UK equities in 2022, not least thanks to an increase in mergers and acquisitions due to the valuation gap.
“We favor companies with strong supply chains and those that are well positioned to take advantage of shortages in areas such as building materials and distribution and car rental,” he wrote, adding that they have their largest sector exposure in life insurers.
At AJ Bell, Chief Investment Officer Russ Mold acknowledges that past performance is not a good argument for the UK.
“It’s possible to argue that the UK stock market is cheap because it deserves it,” he says.
Indeed, he notes, it shelters “the unpredictable (oils and miners), the indigestible (banks and insurers) and the beyond of the pale, at least with regard to ESG screens (tobacco, oils , minors, bookmakers and defense stocks) “.
But, again, Mold notes that the FTSE 100 is at about the same level as it was at the end of 2016, which is a valuation gap that might be worth trying again.
“In 2022, the overall net profit of the FTSE 100 is expected to double from 2016 and dividends are expected to increase by more than a fifth,” he writes.
“Add to this that the pound is still 10% lower against the dollar and the euro than it was at the time of the referendum on EU membership in 2016, and opponents will be tempted to give the UK market another try in the next 12 months ”.
(Julien Ponthus, Danilo Masoni and Saikat Chatterjee)
RATE IN THE UNITED STATES: WHEN HIKING MEANS CUP (1051 GMT)
The general idea is that if central banks are reluctant to raise interest rates earlier than they should, then the short end of the yield curve should rise while the long end fall.
Such a reaction would mean that financial markets expect that the hastily executed rate hike will weaken the economy and that central banks will be forced to cut rates in the future.
According to ING analysts in the United States, we are not there yet, but “at first glance, the markets appear to be heeding the Fed’s hawkish warnings with higher short rates, but the curve is sending more in addition to worrying signals ”.
“The Fed’s futures now imply that the Fed could cut rates in 2025 after raising them about five times,” they say.
“We are still a long way from the markets which assess a full-fledged political error as is regularly the case in Central and Eastern Europe and the United Kingdom, but this shows concerns about the effects of the Fed’s tapering”, add- they.
Bottom line, “if this rate cut persists, or even worsens, it will show even more clearly investor skepticism about the possibility of central banks embarking on significant tightening.”
Below is ING’s chart on Fed Fund futures.
GIMME MORE (BITCOIN) (0924 GMT)
Despite Bitcoin’s tough run in 2021 and numerous warnings from regulators, investors are rushing to grab the world’s most popular cryptocurrency, according to a survey by Grayscale Investments, the world’s largest digital currency manager and 8 Acre Perspective financial market research company. Among the main conclusions:
- More than a quarter (26%) of investors surveyed already own Bitcoin
- More than half (59%) of investors surveyed are interested in Bitcoin investments – marking a notable increase from 2020 (55%) and 2019 (36%)
- Over half (55%) of investors who currently own Bitcoin started investing in the past 12 months
- Interest in Bitcoin investment products has increased significantly among older investors – aged 55 to 64 (46% in 2021 vs. 30% in 2020) – and female investors (53% in 2021 vs. 47% in 2020 )
- Most Bitcoin owners (87%) own one or more other digital currencies
Grayscale, which manages more than $ 51 billion in assets under management, also noted that the demographics of bitcoin investors have shifted significantly to the older generation compared to previous years.
BUY ALL (0859 GMT)
Another suggestion that Omicron won’t cause serious illness (from Dr Fauci) provided traders with what they needed to get back into the markets with a risk mindset. China’s monetary easing has also come into play.
As a result, European stocks got off to a very good start this morning with the STOXX 600 (.STOXX) rising for a second straight session, up 1.6% and forecast for its biggest jump in two days since the Pfizer’s vaccine breakthrough announced in November 2020.
No sector is in the red, a Eurozone volatility gauge (.V2TX) reflects recent gains, technology (.SX8P) stands out, up 3.6%, and STOXX’s 91% records gains.
Here’s your opening snapshot:
OMICRON! WHAT IS OMICRON? (07:43 GMT)
This looks broadly to be the tone in global markets on Tuesday as investors stepped up bets that Omicron’s new variant might not turn out to be as deadly as previously feared. Global stocks are on track for their biggest daily gain in nearly two months, money markets are back to rising US rates by June 2022, and the dollar has recouped half of its losses against the Japanese yen seen as a safe haven since the first variant. be on the first page.
Even policy makers are optimistic. Australia’s central bank has indicated that the Omicron variant outbreak is unlikely to derail the current financial recovery, while top US infectious disease official Anthony Fauci told CNN, “It doesn’t appear that ‘there is a great degree of severity “so far. Read more
More good news also came from Beijing which reduced the amount of liquidity banks must hold in reserve on Monday, its second such move this year, freeing up around $ 188 billion in long-term liquidity to support the slowdown. economic growth. Although questions remain about the future of the China Evergrande group (3333.HK), a number of bondholders at the heavily-indebted property developer said they did not receive coupons by the end of a deadline. 30-day Monday New York time grace period.
Investors have pushed European and US equity futures higher, expecting the broader economic recovery not to derail in 2022.
Expectations that global central banks will not rush to tighten their policies immediately bolstered Chinese stocks and boosted the Australian dollar. Indeed, JPMorgan strategists have postponed their call for the first UK interest rate hike to February from December despite strong labor market data. Market volatility indicators also retreated, with European and US indicators well below last week’s highs.
Oil prices rose, consolidating a nearly 5% rebound the day before and cryptocurrencies started picking up pieces again after a deadly drop over the weekend.
Key developments that should give more direction to the markets on Tuesday:
- Speakers’ corner: Lagarde from the ECB, Guindos, Schnabel
- ZEW survey in Germany
- Revised third quarter euro area GDP
- US trade balance
- Inflation data for Chile
EUROPE: STEAM REBOUND COLLECTION (07H24 GMT)
European stocks are expected to see a second straight day of solid gains, with index futures rising nearly 1% and investors signaling to allay concerns about the Omicron virus variant.
In Asia, equities rallied on waning concerns about the virus, but also supported by a policy easing measure from the Chinese central bank aimed at further slowing economic growth. Read more
US equity futures also indicated another solid session later on Wall Street after yesterday’s positive close.
It seems investors have been reassured by senior US infectious disease official Anthony Fauci who, speaking about Omicron, told CNN that “so far it doesn’t look like this is very serious.” Read more
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