Page 32 - DIY Investor Magazine | Issue 40

WHAT GOES DOWN MUST COME UP?
April 2024 32
DIY Investor Magazine ·
The UK has become a bit of punching bag in recent times, stumbling from one crisis to another while presiding over an economy stuck in neutral. In many respects, it’s of little surprise its benchmark index has trailed the MSCI All Countries World index by almost 50% over the last five years – by Andrew Courtney
Of late, stubborn inflation and negative growth have provided a
However, it is certainly a marked improvement given where we distinct stagflationary feel to proceedings and, with an economy
were just a few months ago.
heavily reliant on old world industry and imported energy, it has
been difficult to see a positive catalyst on the horizon.
Of course, the market is a discounting mechanism and
with current valuations trading near historic lows and the Despite all the doom and gloom however, there have remained
performance gap between the US stretching ever wider, any pockets of optimism on the ground. For the most part, this has
sign that fortunes are improving could help breath some life into relied on some old-fashioned British pragmatism that things
the UK’s sclerotic indices. This is especially true considering could hardly get much worse, however over the last few weeks
the leap of faith now required in the US, which is facing its own we have begun to see signs of a more sustainable inflection.
stagflationary overtones, while trading on a multiple which can be politely described as generous.
The positive news is headlined by February’s inflation data which, while still well above the Bank of England’s target of 2%, was down sharply, falling to 3.4% from 4.2% the month prior, marking the slowest annual rate since September 2021.
Service sector inflation which typically reflects domestic rather than imported pricing pressures also moderated to 6.1%
from 6.5% (although it remains well above comfort levels, any decrease here is welcome).
Promisingly, steady wage growth suggests we are beginning to see some stability in the labour market and sustained real earnings should provide a much-needed boost for GDP, which despite remaining modest, is at least starting to trend upward following a couple of consecutive quarters of negative growth.
It remains a delicate balancing act, and one month of below trend inflation won’t be enough to move the dial on the Bank of England’s policy outlook.
‘THE OPPORTUNITY IN UK SMALL AND MID-CAP EQUITIES IS ONE OF THE MOST ATTRACTIVE IN RECENT MEMORY’
‘WHEN MARKETS TURN THEY CAN TURN RAPIDLY, AND WITH THE UK SLOWLY DIGGING ITS WAY OUT OF THE ECONOMIC DOLDRUMS WE COULD ONCE AGAIN BE CLOSER TO THAT POINT THAN MANY THINK’
This seems to be the view taken by BlackRock Throgmorton manager Dan Whitestone who, at the trust’s AGM last week, noted the relative attraction of UK markets at current prices. Dan, who is unashamedly a growth manager, thinks that the opportunity in UK small and mid-cap equities is one of the most attractive in recent memory.
He says that the share prices of UK companies have become increasingly detached from their earnings potential and believes that they are ripe for a sharp bounce, which he thinks could happen very quickly.
Another trust beating the drum for UK equities is Temple Bar with managers, Ian Lance and Nick Purves, of the view that the opportunity in the UK market is as good as it has ever been.