Britain’s FTSE 100 Index Is Back To Being The Poor Man Of Europe
This year’s underperformance has seen the UK fall further behind France as Europe’s largest stock market.
(Bloomberg) -- Normal service resumed for the FTSE 100 Index in the first quarter of 2023 as the British gauge of blue-chip stocks underperformed the rest of Europe.
After avoiding last year’s global selloff, several factors that favored the exporter-heavy UK benchmark in 2022 — such as a weaker pound, big interest-rate rises and a preference for non-cyclical shares — have started to ease. That’s weighed on heavyweights such as miner and trading firm Glencore Plc and British American Tobacco Plc, while Barclays Plc has been among lenders hit by a rout in global banking stocks.
With a rise of 2.5% in 2023, the FTSE 100 has labored behind gains of 14% in the Euro Stoxx 50 and 8% in the Stoxx Europe 600, resuming a period of underperformance stretching back a decade. Even the typically defensive Swiss Market Index has climbed slightly more than the UK gauge, despite Credit Suisse Group AG cratering.
Global fund managers have trimmed UK equity allocations by 58 basis points this year, while increasing their euro area allocation by 72 basis points, HSBC strategists including Amit Shrivastava said in a note Friday.
With the FTSE 100 trading at a “slight premium” to the rest of Europe in terms of valuation, and the UK experiencing higher levels of inflation and lower economic growth than the rest of the region, “one would expect Europe to outperform,” said Michael Field, European equity market strategist at Morningstar.
Given the UK benchmark’s outsized exposure to energy and commodity-related stocks, “it is unlikely to outperform unless we see a large economic pick-up,” he said by email.
This year’s underperformance has seen the UK fall further behind France as Europe’s largest stock market. Paris is now nearly $260 billion bigger than London, based on total market capitalization of listed equities, according to data compiled by Bloomberg. Only a year ago, the UK was $400 billion larger.
To be sure, Citigroup Inc. is positive on the UK market, keeping the country at overweight in a note Friday. Valuations are cheap, and defensives could still outperform if investor focus shifts from rate rises to recession risks, said strategists including Beata Manthey.
--With assistance from Michael Msika and Sagarika Jaisinghani.
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