JPMorgan Says Buy U.K. Stocks for the First Time Since Brexit

(Bloomberg) --

JPMorgan Chase & Co. strategists are recommending investors buy U.K. stocks for the first time since the 2016 Brexit referendum fueled years of lackluster returns. 

“U.K. risk-reward is improving in our view given the significant underperformance over the years,” JPMorgan strategists led by Mislav Matejka wrote in a note to clients on Monday, lifting the market to overweight from neutral. “The U.K. market looks near record cheap.”

U.K. stocks have lagged the rally that catapulted equities in Europe and the U.S. to successive record highs this year because of concerns over economic recovery, supply constraints and trade tensions. As a result, the market is trading at a discount to global peers at a time when investors worry about stretched valuations in other major equity regions. 

U.K. equities “could hold up better against a global equity backdrop that doesn’t show as dramatic upmoves as seen previously,” the strategists wrote. They also cite optimism over Bank of England’s relatively accommodative monetary policy stance and easing concerns over labor shortages and rising electricity prices. 

JPMorgan strategists also changed their longterm view about positioning within the U.K., and now favor the FTSE 100 Index over the FTSE 250 because of the exporter-heavy gauge’s underperformance and discount versus domestic sectors. A weaker pound should give exporters a boost, they said. 

Since the Brexit referendum, U.K. equities have lagged the U.S. by a cumulative 50%, and euro-area stocks by 24%, according to JPMorgan. In the summer of 2020 the strategists ended their multi-year short stance on the market, saying the worst of dividend concerns, Brexit and Covid-19 risks were in the past. 

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