Daily Commentary

MarketMinder’s View: As the article mentions some specific companies and investment funds, please understand MarketMinder doesn’t make individual security recommendations. Any mentioned here are for illustrative purposes only. Now, we don’t think valuations are a useful guide for investors, so the titular claim here that UK stocks are “cheap” doesn’t hold any water for us fundamentally. Our interest here is from a sentiment perspective. From that point of view, consider these two observational nuggets: “The first is that although the dominant macroeconomic narrative in the UK is pretty gloomy, especially in the run-up to the Budget next week, what happens in the economy isn’t necessarily a good guide to what happens in the equity market, which is full of internationally focused stocks. [Second,] there’s a good reason why UK stocks have been cheap for so long, and it’s not because of the impending Budget. It’s because overall UK corporates have been producing anaemic earnings growth while the US corporates have seen double-digit, AI-infused earnings growth. ... Look at the US markets and you will see that its stock markets are filled with, yes, you guessed it, AI-influenced tech and telecom companies. … However, representation in the UK is much weaker by comparison. If we examine the 350 largest companies in the FTSE All Share index, technology and telecoms account for, wait for it, less than 5pc of the index’s total value. In simple terms, our market comprises sectors and stocks that don’t excite ...” This argument hits a key overlooked point about UK markets: They skew more toward value-oriented sectors (especially Financials and Energy) than American markets, so their trailing US stocks isn’t shocking considering growth has led for the better part of the past decade. However, all sectors and styles have periods in the rain as well as the sun. UK stocks’ time will come eventually, and judging by the still “gloomy” sentiment surrounding UK stocks, reality has a low bar to clear to exceed today’s low expectations.

MarketMinder’s View: We found this long article mixed. It is heavy in some parts on geopolitics, diplomatic relations and some sociology, but our focus isn’t on those topics given their limited direct market implications. The analysis does raise some global economic developments worth addressing, but first, a couple quibbles. The “steepest US tariff wall since the 1940s” sounds like an insurmountable trade barrier, but it is riddled with exemptions. Commerce disruptions aren’t great, but they are nowhere near as airtight as the piece makes them seem—never mind whether they even stand up to legal scrutiny. (The article also lists some specific companies, so we remind readers MarketMinder doesn’t make individual security recommendations, focusing only on the broader theme.) Second, in making the case “America is cutting itself off from a region set to comprise almost 60% of the global economy by 2050 versus just 11% for the US,” it relies on long-term forecasts whose veracity is unknowable today—so take them with a few grains of salt. And while the article overstates America’s isolation on the world stage, it does highlight how non-US countries are strengthening their trade ties—an underappreciated global market tailwind. One example here is thawing relations between India and China, which should increase trade opportunities, as well as expanded Chinese trade with Southeast Asia—an underappreciated side effect of US tariffs that helps the global economy’s resilience.

MarketMinder’s View: With affordability on UK policymakers’ minds, October’s UK inflation dipped to 3.6% y/y from September’s 3.8%, which was the quickest since July. The latest numbers aren’t likely to stop the grumbling as “The 12-month inflation rate for food was 4.9% in October, up from 4.5% in September.” But this was offset by “smaller rises in household energy costs and lower hotel costs,” illustrating how households’ living expenses can differ depending on their personal spending habits. Coming ahead of next week’s UK Budget, Chancellor Rachel Reeves said, “I’m determined to do more to bring prices down,” but we think this unearths another misconception. No policymaker, whether in the Treasury or at a central bank, can control inflation, which is caused by too much money chasing too few goods and services (though repealing the household energy price cap might help, if it were on the agenda). Since UK money supply growth isn’t out of hand—M4 (excluding intermediate Other Financial Corporations) is running a pedestrian 4.4% y/y through September, per the Bank of England, in line with prepandemic rates—inflation isn’t likely to heat up again for the foreseeable future. So while we don’t know definitively if mid-decade inflation has peaked, as the article asks at the end, stocks have long since moved on from inflation obsession.