The Bank of America has said UK domestic equities face near-term downside of 7% despite the bulk of fund managers stating the UK election result is supportive of these stocks and the FTSE 250 rallying on the Conservatives’ landslide.
The bank noted domestically-exposed UK stocks have outperformed foreign-exposed stocks by 14% since mid-August. It continues with its underweight that has been in place since late October.
The FTSE 250 rose almost 5% on Friday morning as the Conservatives gained a larger majority than polls had been predicting. Sterling briefly hit $1.35 supporting more domestically-focused stocks.
Gam and Investec managers champion domestics on Conservatives’ win
The note contrasted with the response from UK equity managers.
Gam investment director Adrian Gosden said the result was positive for domestically-orientated companies and would likely be positive for consumer sentiment “at this important festive time of year”.
Investec UK Special Situations manager Alistair Mundy (pictured), likewise championed his exposure to UK banks, builder’s merchants, retail, food retail, DIY and housebuilding, believing this would be supported by the Conservatives’ victory.
Mundy felt domestics would benefit from a strengthening pound, international equity buyers, M&A activity and a rebound in consumer sentiment.
Upside for European stocks and FTSE 100
In contrast, Bank of America Global Research saw 4% potential upside for the Stoxx 600 by mid-March and a 6% rise for the FTSE 100 over the same period.
Resources are an overweight for the bank, which anticipates 10% outperformance for energy and mining in the near term. It forecasted Brent oil to rise to $70 a barrel helped by US dollar weakness.
The note suggested UK GDP growth of 1% in 2020 and GBP at $1.33 through to Q2, when the UK faces a July deadline to request an extension on the transition period for Brexit.
Prime minister Boris Johnson has promised not to request an extension but trade experts state it will be difficult for the UK to negotiate a favourable agreement in 11 months.
