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UK stocks could surge when Brexit is settled

The bounce seen in global equity markets since the end of last week as a result of an improving political environment could be replicated in the UK if the Brexit process comes to a stable conclusion.

This is according to Russ Mould, UK investment director at AJ Bell.

His comments came as Asian and emerging market equities opened strongly this morning (December 3) following progress in the trade dispute between the US and China, with our sister title the Financial Times reporting that US president Donald Trump is to offer a “truce” in the dispute.

Mr Mould said the swiftness of the response by investors to the change in the political rhetoric indicated that if a similar change in the political weather were to happen in the UK, then the UK equity market would also increase sharply.

He said the UK market has underperformed all other developed equity markets in 2018, an outcome that has left it on a valuation multiple of just over 11 times earnings, which is considerably less than the long-term average for the market of 18.

The yield on the UK market of 4.8 per cent is also greater than that offered by other markets, and Mr Mould said this makes those markets “cheap.”

Aninda Mitra, senior analyst at BNY Mellon, said the market is “elated” by the developments in the trade dispute but he added that the reprieve could prove temporary.

Markets have also been boosted by comments from Jerome Powell, chairman of the US Federal Reserve, who stated last week that US interest rates may be approaching the peak level for now, and so not need to rise by as much as the market had previously expected.

Ed Smith, head of asset allocation research at Rathbones, said the move by Mr Powell has boosted markets, but that a change in relations between the US and China would provide an even bigger boost.

Jonathan Davis, Chartered financial planner of Jonathan Davis Wealth Management in Hertford, said there have always been issues in markets but investors should remember that this has not stopped equities rising consistently over the past century.

Source: FT Adviser