UK stocks likely to surge this year - but Labour's win won't be the reason
July 5, 2024 (Investorideas.com Newswire) UK stocks will secure considerable gains for the rest of 2024 - but it won't be down to Labour's landslide victory in the election, predicts the CEO of one of the world's largest independent financial advisory and asset management organisation.
The bullish prediction from Nigel Green of deVere Group comes after UK equities only rose slightly after Labour's thumping win in the general election.
He says: "There are three reasons why UK stocks seem to have shrugged off the Labour win.
"First, expectation had been widely priced-in by the markets, so the reaction was muted. Second, the short-term uncertainty of the election is over; and third, we will likely see a period of stability of government and policy making - which markets like.
"However, we expect that UK stocks are, indeed, likely to secure considerable gains for the rest of 2024 - but it is not Labour's landslide victory that's driving this narrative.
"It's history and investor behaviour that are the real game-changers here. Traditionally, low valuations attract savvy domestic and foreign investors eager to snap up undervalued assets. And the UK market is ripe for such a resurgence."
The FTSE 100 is, says Nigel Green, "trading at a massive discount compared to its historic averages."
Over the last five years, the index has seen an average trailing PE ratio of 14.9x, with the past decade averaging 16.3x. Now, it's significantly lower. European indices also show discounts, but nowhere near as steep. Meanwhile, US indices are basking in valuations above their 10-year averages.
"We expect that the real action will be driven by the fundamentals - low PE ratios and the historical tendency for undervalued markets to rebound."
He continues: "With the UK market in such discounts, investors are likely to return in droves.
"This isn't just speculation; it's a pattern observed time and again. When markets are undervalued, they attract attention.
"Savvy investors-both local and international-are poised to dive back in, seeking to capitalize on the attractive valuations."
But it's not just individual investors who will be eyeing these opportunities.
"Competitors and private equity firms are expected to ramp up takeover activity, seizing the chance to acquire undervalued UK companies. Additionally, UK firms may increase share buybacks, aiming to boost shareholder returns and take advantage of their own low valuations."
The deVere CEO conclude: "While Labour's landslide victory provides a stable backdrop, it's not going to be the primary driver of the gains we predict for UK stocks this year. The ultra-low valuations are the true attraction, and history suggests they won't linger forever."
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