The UK equity market trades at a double discount to the rest of the world, but recent corporate activity suggests the discounts will soon disappear, according to Simon Moon, who jointly runs the £600m Unicorn UK Income fund.
He said: “The UK has been firmly out of favour with global asset allocators since the referendum of June 2016, and who can blame them?
"The significant uncertainty regarding the relationship with the UK’s largest trading partner was a huge and largely unquantifiable risk.
"For UK stock selectors this environment of aversion from global fund flows has been uncomfortable to live through, but the volatile period has also provided plenty of opportunity to invest in some world-class companies at extremely attractive valuations.
"The avoidance of a ‘no-deal’ Brexit is significant and, although there will inevitably be some teething problems, the clarity it provides is invaluable.
"This more certain outlook, combined with a weak but gradually recovering sterling, and the low valuations we’ve seen across domestically-focused companies in the UK creates tremendous opportunities.
"These conditions are also conducive to in-bound M&A activities where international companies will want to take advantage of the ‘double discount’ on currency and valuations while it lasts.
The discount relating to currency referred to is the decline in value of sterling since 2016, the cost of buying a UK asset fell for overseas investors whose own currency rose as sterling fell.
Jen Causton, who covers UK equities as part of the multi-asset team at Liontrust said: “Valuations in UK equities were so cheap it was a once in a lifetime opportunity.”
She added: “There is a clear point in the chart”, where UK equities became more attractive, but says that point was the vaccine discovery, rather than the Brexit deal.
davd.thorpe@ft.com
