Where to invest right now in equities? One of the most attractive options is the British stock market, which according to experts has regained its shine and is back in trend. And it is that in a convulsive month in which practically all the stock indices of developed markets fell, in reference to January, the FTSE 100 managed to write down a small gain. This is what analysts recommend, and the sectors with the most potential.
“We believe that equities continue to offer a good reward for risk, and that the cycle is far from over”, defend the JP Morgan strategists in their latest note, in which they explain that they have decided to reiterate their decision to improve their advice on the UK stock market after spending six years with a “cautious stance” on it.
JP Morgan recommends “overweighting” British stocks and points out that right now it is “a mistake” to position yourself for a recession since financing conditions are “very favorable”, labor markets “very solid”, consumption “is little leveraged”, there are “strong corporate cash flows” and also “strong bank balance sheets”.
For its part, from DWS they point out that the recent gains of the British stock market “seem to reflect the scarce presence of unprofitable technology stocks in the FTSE 100, as well as the greater weighting of the index in energy, mining, financial and health sector stocks“. That is why UK equities have not been so affected by the volatility of the first month of the year.
As Thomas Bucher, global equity strategist at DWS, points out, “investors are becoming more sensitive to valuations again and are losing interest in stocks that have only been supported by narratives.” “Partly as a result, in December we lowered our estimated IT sector to neutral and upgraded the healthcare sector, which we believe offers more defensive growth and reasonable valuation levels,” he explains.
The German manager, in addition, also speaks of the lessons that Brexit has taught “bargain hunters”. As she puts it, “political cataclysms, such as the UK leaving the European Union, can create opportunities, but they will likely be more abundant among smaller companies than at the index level.” Finally, DWS emphasizes that when investing “it is advisable to be very sure of our analysis of the supposed bargain and not be surprised if the rest of the investors take a little longer to detect it.”
Where to invest?
In addition to the sectors that DWS talks about, Berenberg experts have also focused on others that may be of interest to investors. Specifically, the German firm advises that the UK life insurance sector be taken into account, because “it offers very attractive income opportunities, underpinned by two positive factors: first, the solid generation of cash, which gives rise to attractive dividends and sustainable with the potential for an upside surprise; and second, the structural growth of savings and retirement, which is still undervalued by the market”.
And in Berenberg they also look favorably on British banks. “They are benefiting from the rise in interest rates, in every way”, comment the experts of this firm in reference to the decision that the Bank of England adopted a few days ago, which decided to raise rates to 0.5%. In his opinion, “although domestic UK banks have modestly outperformed their European peers over the last 12 months, we believe earnings and consensus valuations do not reflect the multi-year benefit of higher UK interest rates.”
