What market index does the UK most resemble at the moment?
Certainly not the US, which is up a little over 3 per cent year to date, if you judge it from the S&P500, while the FTSE is down 23 per cent still.
Not the Dax, which is just down 4 per cent this year having climbed back an astonishing 50 per cent since March lows. In fact, not really any European market.
No, the market that most resembles the UK at the moment is Russia, according to Dewi John, head of research United Kingdom & Ireland, at Refinitiv Lipper.
It is a fascinating comparison to make and while the two indexes are not easily compared, they do have one thing in common, and that is the lack of major technology companies.
I have always said that the greatest weakness of British tech companies was their willingness to be sold before they reached scale.
Think of the sell-offs in recent years, from Deepmind to Imagination Technologies, Arm Holdings and Worldpay – even smaller companies such as E2V (a global leader in lenses for space missions and Cern), all now under foreign ownership.
Not all were listed, of course, but the lack of scale is a weakness in the UK index.
Analysts say there are three things hampering the UK as a market at the moment: Brexit, our own flagellation of the pandemic, and the increasing likelihood of a long recession.
A cooler head may note that these are also factors that are also affecting many European economies.
Retail investors withdrew close to £13bn from UK equity funds over the past four years. By the end of June just 14 per cent of UK investors’ assets were in UK equity funds – down from 23 per cent before the referendum vote. In 2003, 40 per cent of our money was in the UK.
So why is the UK in this position when valuations are actually relatively low?
It is certainly a complex relationship. On the one hand, we are always keen to say that most UK investors have too much in home equities. On the other hand, the market is undervalued and unloved.
In reality it is several things, not least of which has been the gradual realisation that UK companies are very outward-focused, and that a bet on the FTSE 100 is really a bet on global markets.
That makes the 250 and smaller companies a far more logical choice for anyone looking to invest in the UK.
Secondly, this could also be a viewed as a success for diversification, and the need to focus asset classes more broadly than the UK. Where one person sees failure, you could also see this as a success.
But I suspect there is also one more factor at play here: dividends. One of the great historic reasons for steering away from US and many European companies was that they failed to pay dividends, but as this changed so did our appetite for these stocks.