Penny also thinks the euro currency themes will be a driver of UK M&A activity. “If the pound remains undervalued in the current environment of low growth and no inflation, we think companies will be acquired or start acquiring things,” he explained. “Already we can observe that people are buying more things, with ARM Holdings being an obvious example. Debt is cheap and growth is still difficult to come by so people will continue to buy cheap assets to enhance their assets further.”
“The frightening thing is that the UK market looks so good,” agreed Mumford.
Though, Mumford acknowledges that part of the UK’s appeal lies in the translation effect of cheaper sterling to international exporters, he thinks domestically focused companies look possibly more attractive than the larger FTSE 100 companies long-term.
“Domestic stocks have been overlooked lately,” said Mumford. “For example, in the small to midcap retail sector you can find stocks like Debenhams, Laura Ashley and Bonmarche that have decent yields and low multiples. The yields will pay for themselves over the holding period and it’s a more attractive return than you are going to get from bonds currently, especially when the rate of inflation will increase.
“Construction also remains fairly depressed. While Philip Hammond didn’t say much more about Crossrail or Heathrow in the Autumn Statement, one can assume that the construction companies will benefit from increased fiscal spending,” he remarked.
And in property, Mumford says there are a number of smaller companies currently on sale for half of their asset value, while shopping centre companies can also be bought at a huge discount. “For overseas investors, it is much cheaper to buy property now than it was before the devaluations, which is why the investment appetite from Europe and the Far East continues to be quite good.”
