UK stocks lag behind, but 2021 should be different

With the UK exiting the EU stifled by a blanket of tier 3 and 4 restrictions, stocks are understandably risk-averse as we head into the New Year. However, while short-term uncertainty will bring volatility, the promise of a Spring renewal is likely to bring plenty of upside in 2021. 

• FTSE 100 on course for worst year since 2008 
• Brexit uncertainty and Covid restrictions hurt sentiment  
• Prospect of Spring reopening provides target for forward thinking investors 

The FTSE 100 looks set to close out the year on the back foot, with the value and cyclical nature of the UK markets ensuring significant underperformance compared with their US counterparts. That underperformance of UK stocks is never more apparent than seeing the Dow reach record highs in the same week as the FTSE 100 could secure its worst annual performance since 2008. Travel and housing are at the forefront of todays losses, with worries over an extended period of economic restrictions heightening the clear uncertainty of exactly how hard the UK economy will suffer on its exit from the EU. The government’s Brexit deal does allay many of the fears over a potential breakdown at the border, yet questions remain over how hard the services sector will suffer from a deal which pays little attention to an area which makes up a whopping 80% of the UK economy.  

With 2020 behind us, traders will be looking forward to a period of increasing stability and prosperity. Despite ongoing upheaval and suffering, the swift actions taken on a governmental and central bank level have helped avoid what could have been a year filled with bankruptcies and economic collapse. Instead, UK businesses are looking towards Spring as a target to blossom once again. The current April deadline to end the furlough scheme coincides with Matt Hancock's prediction that the UK could be out of this crisis by spring, with the vaccine roll-out boosted by the news that the AstraZeneca inoculation effort begins next week. While short-term fears over the Covid restrictions and Brexit implications will understandably ensure volatility over the months to come, the prospect of a reopening effort in Q2 should provide the basis for a much better 2021 for UK stocks.