UK equities – Further to run? Expectations for a supercharged global economic revival, combined with falling infections and positive news flow around global vaccine rollouts, saw risk assets press ahead in the first quarter of 2021. Plagued by Brexit uncertainty and the pandemic shock, it is no secret that the UK stockmarket has been a serial underperformer in recent times. Improving economic fundamentals and continued enthusiasm for the ‘reopening trade’ has seen this trend reverse since the Pfizer vaccine approval announcement back in November. Institutional money, which had been focused on technology and the ‘stay at home economy’ stocks throughout the pandemic, has started flowing into the more cyclical areas of the market such as industrials and financials. Companies most adversely affected by the crisis are bouncing back and our domestic FTSE All Share Index (which is materially overweight in financials, commodities, retailers, and travel companies), has continued to benefit from the reopening trade, gaining 20% over the last 6 months. Now over 12 months since Boris Johnson first declared the first national lock-
down, as of mid-April, more than 50% of the population had received their first Covid-19 vaccination. With the Bank of England likely to keep borrowing costs around historic lows during our recovery phase, the domestic economy and UK corporate earnings look poised for a rapid vaccine-fuelled resurgence over the remainder of the year. We believe the tug-of-war between positive news surrounding vaccine rollouts and negative headlines relating to new variants is likely to be the driving
force behind investor sentiment and market direction over the short term. We remain broadly positive in our outlook for financial markets, in particular UK equities, but remain mindful of the changing dynamic between bonds and equities given the threats posed by rising inflation and higher interest rates. For now, UK equity markets remain in the ascendancy and we believe a diversified portfolio, with complementary exposure to overseas equities and ‘real assets’ (such as property, infrastructure and commodities) should hopefully serve investors well for the remainder of the year. If you would like more information on Cave & Sons and our investment management services, please get in touch using the contact details on the opposite page.
Cave & Sons Ltd is authorised and regulated by the Financial Conduct Authority (FCA), Financial Services Register number 143715. This communication is for general information only and is not intended to be individual investment advice, tax or legal advice. The views expressed in this article are those of Cave & Sons and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. You are recommended to seek professional regulated advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Key Risks: Past performance is not a guide to future performance. The value of an investment and the income generated from it can go down as well as up, and is not guaranteed, therefore you may not get back the amount originally invested. Investment markets and conditions can change rapidly