U.K. Stocks Will Likely Stay Stuck in Chronic Underperformance

(Bloomberg) --

U.K. stocks got a relative boost Monday from banks and commodities. That may not be enough to end their long-standing underperformance against European peers, despite relatively attractive valuations.

The FTSE 100 is outperforming the Stoxx Europe 600 today thanks to strong earnings from HSBC Holdings PLC and rising commodity prices helping miners and energy companies. Yet it’s lagging some peers, particularly Italy’s FTSE MIB. That seems to be U.K. stocks’ lot in life: to be a serial underperformer. The FTSE 100 is trailing the Stoxx 600 so far this month. It’s the worst-performing major Western European benchmark this year except for Spain’s IBEX 35, and last month hit the lowest versus the Euro Stoxx 50 since 2008.

Being a bargain isn’t enough for the FTSE 100 and the gauge remains below pre-pandemic levels. Familiar headwinds for the FTSE 100 include declines in commodity prices and a stronger pound weighing on big exporters. While commodities are currently supportive, investors are concerned that supply constraints are more acute for the U.K. amid Brexit disruptions. And ESG concerns may mean the FTSE 100’s overexposure to miners and oil producers is a liability rather than an asset.

Market enthusiasm for U.K. stocks remains relatively muted. In the latest Bank of America Corp. fund-manager survey, allocation to U.K. equities fell to 12% underweight, the largest since January. The FTSE 100 has also lagged the Euro Stoxx 50 and Stoxx 600 this year and the past few months in terms of analyst optimism, measured in 12-month forward price targets.
 

• NOTE: This was a post on Bloomberg’s Markets Live blog. The observations are those of the blogger and not intended as investment advice. For more markets analysis, go to MLIV.

©2021 Bloomberg L.P.