UK stocks will secure considerable gains for the rest of 2024 – but it won’t be down to Labour’s landslide victory in the election, predicts chief executive of major financial advisory.
Nigel Green, the CEO of deVere Group, made the prediction after UK equities only rose slightly after Labour’s landslide win in the general election.
Mr Green said: “There are three reasons why UK stocks seem to have shrugged off the Labour win.
“First, expectation had been widely priced-in by the markets, so the reaction was muted. Second, the short-term uncertainty of the election is over; and third, we will likely see a period of stability of government and policy making – which markets like.
“However, we expect that UK stocks are, indeed, likely to secure considerable gains for the rest of 2024 – but it is not Labour’s landslide victory that’s driving this narrative.”
Mr Green argues that it is history and investor behaviour that are the real game-changers in the investing market.
He said: “Traditionally, low valuations attract savvy domestic and foreign investors eager to snap up undervalued assets. And the UK market is ripe for such a resurgence.”
Nigel Green also said that the FTSE 100 is “trading at a massive discount compared to its historic averages.”
The index has seen an average trailing PE ratio of 14.9x over the last five years, with the past decade averaging 16.3x.
It is now significantly lower. European indices also show discounts, but nowhere near as steep. Meanwhile, US indices are basking in valuations above their 10-year averages.
Mr Green said: “We expect that the real action will be driven by the fundamentals – low PE ratios and the historical tendency for undervalued markets to rebound.”
He continues: “With the UK market in such discounts, investors are likely to return in droves.
“This isn’t just speculation; it’s a pattern observed time and again. When markets are undervalued, they attract attention.
“Savvy investors—both local and international—are poised to dive back in, seeking to capitalize on the attractive valuations.
“Competitors and private equity firms are expected to ramp up takeover activity, seizing the chance to acquire undervalued UK companies. Additionally, UK firms may increase share buybacks, aiming to boost shareholder returns and take advantage of their own low valuations.
“While Labour’s landslide victory provides a stable backdrop, it’s not going to be the primary driver of the gains we predict for UK stocks this year. The ultra-low valuations are the true attraction, and history suggests they won’t linger forever.”
