With a new UK leader, sterling remains vulnerable but stocks attractive – UBS
A reduction in political uncertainty with the appointment of a new UK prime minister, Liz Truss, did not immediately help the pound last week. Cable fell to its weakest intraday level against the US dollar since 1985, taking its decline close to 15% year-to-date. But UK equities have held up well, up 0.5% so far in 2022 versus -17.5% for global stocks, and economists at UBS expect this outperformance to continue.
Earnings growth should be boosted by the weaker pound
“We don’t expect the new government’s policies to do much to support the pound over the coming months. In fact, a widening budget deficit could prove an additional headwind for sterling since the new prime minister is proposing tax cuts and higher spending, starting with a package to curb rising energy bills.”
“FTSE 100 companies generate around 75% of their revenues outside the UK, which means the market is less sensitive to domestic growth concerns. It also means that earnings growth should be boosted by the weaker pound.”
“From a valuation perspective, the FTSE 100 trades on a 12-month forward P/E of 9.4x, an attractive 35% discount to the MSCI All Country World index.”
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FXStreet Insights Team
FXStreet
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