'Bargain-hunting investors to take renewed interest in UK equities'

Ting cited data from Morningstar Direct, which showed that as of the end of July 2023, US-listed UK mutual funds and exchange-traded funds continued to see year-to-date outflows of US$560mn (£448mn).

For the past 12 months through July 31, 2023, UK equity outflows totalled US$1.1bn (£880mn), making the market particularly unattractive amid the outperformance of US and European stocks over the same timeframe.

“But with a flagging US stock market, investors are again eyeing the UK’s undervalued and long-unloved market”, Ting added.

“Outflows have recently slowed in the United Kingdom as investors have been signalling a return of some optimism for the economy’s enticingly cheap investment prospects. Falling energy and stabilizing food prices helped cool Britain’s annualised consumer price inflation rate from June’s 7.9 per cent to July’s 6.8 per cent.

“While the UK’s inflation rate is still far higher than the Bank of England’s 2 per cent  target, we believe its recent downturn could suggest a turning point.”

The UK Department for Business, Energy and Industrial Strategy together with the UK Space Agency has also announced the allocation of its largest-ever research and development budget, worth US$50.2bn, to drive forward the government’s ambitions as a science superpower.

Allocations will deliver on the government’s innovation strategy including its ambition to increase total research and development investment to 2.4 per cent of GDP by 2027.6.

Ting also pointed to the intention of the Labour party - should they win the next general election - to do “whatever it takes” to attract business investment into the UK.

Ting added: "Government measures to boost the UK’s growth potential also include agreements to restore a smooth flow of trade within the UK internal market known as the 'Windsor Framework', in addition to an expansion in the range of businesses able to benefit from them.

"IMF officials have also recently stated that a more measured approach to reviewing retained EU laws 'will help reduce Brexit-related uncertainty (while) . . . enhanced childcare support and tax relief on investment in plant and machinery introduced in the spring budget should support labour participation and business investment, respectively'.

"Taken together, these points make for an appealing case for investors to hold UK companies that seem to be signalling good prospects and perhaps a recognition of undervalued stocks amid a slew of buybacks across several sectors to boost shareholder returns."

But recent news about the UK economy has led to renewed fears of an impending recession.

Latest data, published today by the Office for National Statistics (ONS), showed that UK economy shrank by 0.5 per cent in July, following growth of 0.5 per cent the previous month. 

Abhi Chatterjee, chief Investment strategist at Dynamic Planner said: “UK GDP came in lower than expected at -0.5 per cent. While the economy had resisted stubbornly falling into recession, signs of lower growth were imminent from trends in consumer behaviour. 

“With ONS reporting 67 per cent of adults spending less on non-essentials and 50 per cent shopping around more, households are not out of the woods. Higher oil prices in August will put increasing pressure on inflation going forward."

Ben Laidler, analyst at trading and investment platform eToro, noted that the ONS numbers were the weakest numbers seen this year and likely to reignite stagflation fears, with the economy stagnant and inflation at 6.8 per cent.

Laidler said: “These latest GDP figures are worse than expected, with growth weighed down by strike action and consumer pressures. The services sector, which makes up a dominant 80 per cent of the economy, led the fall - driven by strikes in the health and education sectors, while retailers led consumer sector weakness as the cost-of-living crisis continued to take its toll.

"The economy is stagnant, narrowly skirting recession and up just 0.2 per cent over the past three months, but still facing strong inflation headwinds."