While the US markets are nose bleedingly high, the UK stock market is teeth archingly low.
Even the biggest chart sceptic cant say this chart of SP500 verus the FTSE 100 doesn’t reveal plenty.
You might put that down to the mighty US economy but that would be wrong because the apparently woe-begotten German economy has a market performance thus:
You will also note that Germany has no FANGS or MAG7s to juice its indices. The underperformance is systemic.
So there is only 1 call to make about the UK stock market. It’s a dead duck or a slumber giant. Well probably not a sleeping giant but you get the idea. Whatever it is something around 2012 broke whatever the magic was that kept it inline with the US and Germany. Well it wasn’t Brexit, that was 2016-2020.
Now I could theorise why the FTSE 100 and there are plenty of ‘blah, blah, blah,’ retro-narratives but to me the key call is what next.
Lets look closer.
We see a series of repricings, but the gentlest of appreciation. Bear in mind the index is throwing of yield at twice the rate of the Dow. These repricings are accelerating but even a 50% jump would still have the market in the dog house.
Now you might imagine that the market is full of UK local companies with not international value, but the opposite is true. Most companies in the UK index are global companies and the are in effect selling at half price.
A takeover rush has now begun and it will turn into a torrent and this will drive the market up for sure. Also the dollar appears to be in for a tumble as Trump goes for a malleable low interest rate Federal Reserve which if he succeeds in getting will create a south American vibe which will certainly make all other major currencies look good and thence companies not denominated in dollars look like fine places to hide in.
Make no mistake the UK market is a contrarian play, but in an environment where no one knows what the new normal might be, cheap, dividend, low p/e stocks, not denominated in a falling dollar might suddenly look like the place to be.
A sudden break by the FTSE over 9000 should be the cue, to take a good look at whats on offer and much of it has ADRs to bail into.
The dollar is in for a fall, perhaps not a terribly heavy one, but most likely enough to have an ocean of liquidity hunting for relief. That liquidity will spike non-dollar assets, so now is a time to get your watch list in order to see the action develop. The good old UK is about as cheap an option as you’ll find.