2020 was a year to forget for the UK stock market, with the FTSE 100 badly underperforming both European and global markets after suffering a double-digit percentage fall.
Hit hard by Covid, Brexit uncertainty, dominated by out-of-favour old-economy sectors – as Fidelity put it, "if Britain were a middle-aged man, he'd have just got divorced, lost his job and received bad news from the doctor".
Is more misery in store in 2021? Fund managers certainly aren't keen, with November's Bank of America monthly fund manager survey finding the UK to be the most under-weighted region in the world.
Still, contrarians are tempted by a market that is, as Fidelity put it, “starting to get interesting”.
Global markets
The FTSE 100 is well below 1999 levels and is as low it has been in nearly 50 years relative to global markets, notes Fidelity. Société Générale also points to valuation, noting the FTSE 100’s forward price-earnings ratio is 33 per cent cheaper than the S&P 500.
Research Affiliates is especially keen. In terms of investor risk and reward, the UK is "unrivalled", it says, with a cyclically-adjusted price-earnings (Cape) ratio that is lower even than emerging markets.
Of course, the UK has looked cheap for years, but Research Affiliates reckons mass vaccination and an easing in Brexit-related uncertainty “may mark the beginning” of better times for unloved UK stocks.
