London hailed as Europe’s best stock market
Fund managers back UK but shun Germany
LONDON was yesterday hailed as Europe’s favourite stock market as the FTSE100 hit a twoweek high.
The latest fund manager survey from Wall Street giant Bank of America (BofA) revealed that the UK was ‘the most preferred equity market in Europe’. Germany was ‘the most unloved’.
It was the latest evidence of a reversal in sentiment towards British stocks.
For much of the past couple of years, the City has been gripped by soul-searching amid bombed-out valuations that have left UK-listed businesses vulnerable to foreign takeovers – and strangled any appetite for new flotations.
The BofA survey revealed that the mood was changing, with a positive view on British shares for the first time since June 2021.Yesterday, the FTSE 100 rose 0.4pc as it joined in a global stock market rally amid hopes of interest rate cuts.
It is up more than 7pc for the year to date. In New York, Wall Street stocks hit record highs.
Meanwhile, yields on ten-year UK bonds – which fall as their prices rise – dropped to their lowest level since February. The BofA poll showed Britain topped the list of preferred equity markets in Europe, ahead of Spain, Switzerland, Italy, France and Germany. It comes as Germany’s industrial downturn has seen it labelled the ‘sick man of Europe’ while both it and France are engulfed by political division.
The positive mood towards Britain comes despite the doom and gloom that has surrounded Labour’s first couple of months in government.
Chancellor Rachel Reeves has lamented her economic inheritance from the Tories and Prime Minister Keir Starmer has warned of ‘painful’ measures in the Budget.
Business leaders fear the pessimism could end up denting investment, with tax hikes and a raft of new workers’ rights also likely to take their toll.
Yet official data shows that the economy has been enjoying significant growth this year, with gross domestic product expanding at the strongest pace among all the G7 nations in the first half. Meanwhile, unemployment has been falling. And figures today are expected to show inflation held steady at 2.2pc in August, close to the Bank of England’s 2pc target.
That has allowed the Bank of England to start reducing interest rates – with a quarter point cut last month and the next rates decision tomorrow.
Rate-setters are expected to leave rates on hold at 5pc though last night, bond market trading suggested there was a 36pc chance they could be cut again this week.
Those chances could be given a further boost if the US Federal Reserve decides to go for a jumbo rate cut tonight.
A first US cut since 2020, of at least a quarter of a percentage point, is seen as a certainty – but markets are betting that the most likely outcome is a half-point move.
AMERICANS love their Star-Spangled Banner, the French are obsessed with national pride but we Brits have a problem with patriotism.
A recent poll showed that only 20pc of us feel really proud of Britain, with numbers falling even further among the young.
Reluctance to recognise our strengths has extended to the UK stock market.
Prices are cheap, yet many savers continue to put their money elsewhere, while pension funds allocate less than 5pc of their cash to home-grown stocks.
A quick glance at valuations highlights the chasm between here and the US. In a nutshell, US stocks are dear and ours are cheap. American markets have defied gravity in recent years, sent skywards by the so-called Magnificent Seven – Amazon, Apple, Microsoft, Facebook’s Meta, Google’s Alphabet, AI specialist Nvidia and car maker Tesla.
Now, however, sentiment may be shifting. US technology stocks are wobbling and forward-thinking investors are beginning to appreciate what UK markets have to offer.
The FTSE All Share index – which covers more than 600 London-listed stocks – is trading at an all-time high. Its better-known cousin, the FTSE100, comprising Britain’s biggest listed firms, has also been scaling new heights this year.
Their steady growth reflects a growing belief in the power of UK plc, led by a cadre of top businesses whose innovation and drive are increasingly recognised here and overseas.
ON DRUGS
NOW the largest company on the London market, AstraZeneca is valued at almost £200bn, with each share trading hands at more than 1200p.
The company has come into its own under Pascal Soriot, who became boss in 2012 when shares were 300p. Two drugs accounted for around a third of sales and patents were soon to expire.
Sensing the firm’s vulnerability, US rival Pfizer pounced with a 5500p-a-share bid. The approach was rebuffed but many shareholders were unhappy, worried Soriot would be unable to go it alone.
They were wrong. The stock has soared and Soriot hopes almost to double sales from £35bn last year to nearly £61bn by 2030. This ambition is fuelled by a pipeline of drugs for conditions from obesity to prostate cancer.
Creating new drugs is not easy, however, and stock market reaction can be punitive when trials go awry. Disappointing results for a potential lung cancer medicine proved the point this month, sending shares down more than 6pc in a matter of days. The stock could rebound, if
Soriot achieves his stretching targets. But there are almost certainly bigger bargains to be had on the UK market.
ROLLING UP
ROLLS-ROYCE is a very different beast but its shares are also around an all-time high following a turbo-charged reboot under chairman Dame Anita Frew and chief executive Tufan Erginbilgic. The engineer specialises in aeroplane engines, military defence and energy. The group went through a long period of underperformance. When Erginbilgic joined in January 2023, the shares were less than £1. He set about putting Rolls back on track. The shares have soared to close to £5. The group expects to deliver profits of more than £2.1bn this year, a fourfold increase in just two years. Erginbilgic’s turnaround programme has been given extra ballast by a rebound in the travel business, as Rolls Royce makes and maintains engines for longhaul planes. It is lucrative work but highly complex and slip-ups can arise. Earlier this month, a part failed on a Cathay Pacific flight, prompting the airline to call for replacements, with Singapore Airlines adding that it was inspecting planes as a precaution. Rolls’ shares fell, then recovered, but the incident underlined the challenges that Erginbilgic faces. Any further problems and the stock could suffer. Drugs and engines can be risky but several other UK stalwarts are at alltime highs.
STILL IN FASHION
NEXT is an extraordinary business. Under long-standing boss Lord Wolfson, the retailer has consistently delivered the goods. When he took over in 2001, the shares were around £8. Today, they are close to £105 each.
Resolutely middle-of-the-road, the group has outpaced trendier competitors and holds its own in the fickle world of fashion.
Investment in e-commerce has helped. With strong half-year results expected this month – and more to follow in 2025 – Next shares should continue to deliver long-term, steady growth.
THE OPEN ROAD
AUTO Trader dominates the online car market. Ten times larger than its nearest competitor, the company joined the stock market in 2015 at £2.35 a share. Today, the price tops £8.80 and several City analysts believe it has further to go.
Chief executive Nathan Coe is confident of further growth as the company broadens its range, invests in technology and expands its customer base.
GAINS NOT PAINS
HALEON is a stock market newcomer. Spun out of drugs group GSK in July 2022, the firm caters for everyday healthcare needs and its brands are among the best known in the world. Voltarol for back pain, Panadol for headaches, Tums for indigestion.
Priced at £3.30 when it split from GSK, Haleon shares had a rocky market debut but have been storming ahead over the summer to almost £4, spurred by an upbeat statement from boss Brian McNamara last month, decent dividends and growing confidence among investors about future growth. Haleon is proving its resilience and benefits from a worldwide presence across more than 100 countries.
DATA AND DEFENCE
LSEG, formerly known as the London Stock Exchange, is another UK winner.
Once focused on listing UK stocks, the firm has been transformed into a global provider of data and infrastructure to the financial services industry.
The shares have delivered huge gains along the way, soaring from £3 to more than £100 in the past 20 years.
Many investors associate LSEG with the Stock Exchange, which has suffered from a dearth of companies listing in London.
LSEG’s business stretches far beyond the London market, however, and today, the company has more than 40,000 customers is 70 countries.
While the shares may be out of reach for many investors, LSEG is banging the drum for Britain and highlights the way that a firm can adapt, evolve and reinvent itself to keep ahead in a fast-moving world. Defence giant BAE Systems is also making waves across the globe.
Russia’s invasion of Ukraine put defence in the spotlight. Middle East tension and Chinese muscle-flexing have underlined the need to spend big on defence – and orders at BAE are soaring. Britain’s Armed Forces are a major customer but the group’s sophisticated kit has gained international renown and the shares have gone from strength to strength.
At £3.89 during the pandemic, they have soared to more than £13. Future growth will almost certainly be more muted but in a dangerous world, BAE shares have longterm appeal.
HOUSEHOLD FAVOURITES
BACK in consumer land, Tesco and Marks & Spencer have lost their way at various times but staged a strong recovery over the past two years.
Tesco shares are up nearly 80pc to £3.73. M&S has more than tripled to £3.66 since 2022. Recent results have been encouraging but there should be more to come.
Tesco is the largest UK supermarket by a long way and M&S is a household name, still beloved by millions, here and overseas. Mr Kipling owner Premier Foods is about as British as can be. Exceedingly good cakes aside, the group’s brands include Ambrosia, Bisto and Angel Delight, Batchelors soups and Sharwood’s sauces.
Once a solid and reliable business, Premier came a cropper when it bought Hovis-maker RHM for £2bn in 2006, a disastrous deal which sent the shares plunging. Recovery has been steered by food industry veteran Alex Whitehouse, under whose watch profits have tripled. Dividends have been reintroduced, recent updates have been encouraging and the shares have soared from 24p in 2020 to £1.83, with more upside likely over the next few years. Stock market winners come in all shapes and sizes but they share certain key features. Led by shrewd bosses, they retain an eagleeyed focus on customers, a close grip on the financials and a determination to keep abreast and, ideally, ahead of the times. Many UK firms display all these characteristics and more. As they attract the attention they deserve, our markets should start to recover from years of neglect. About time too.