Time To Buy Cheap UK Stocks? Why I'm Backing The FTSE 100

Intro have you been avoiding UK stocks because they seem stuck in the mud well you're not alone the 5100 has lag behind Global counterparts in recent years posting a mere 133% gain over the past 5 years while America's S&P 500 has soared by 88% and even Europe's stock 600 has climbed by 36% it's been a rough ride for UK equities as they've been battered by political turmoil sluggish growth and a lack of exciting new listings but here's the twist the tide could be turning big asset managers are ramping up their exposure to UK stocks and institutional investors have flipped from being net sellers to net buyers of UK equities over recent months according to Financial Times this shift is massive as it reverses a long-standing Trends but what does it mean is this the moment for UK socks to shine are we on the brink of a comeback or or just another false storm well in this video we'll be deep diving into exactly that and we're going to break it down into three parts the first part will be focused on why the UK stock market is suddenly more attractive the second part will be focused on the obstacles that can still hold us back and the third part will go through the our conclusion of where it's time to jump in so stick around because we might Why the UK stock market is suddenly more attractive just uncover a good opportunity if you're new here I'm Alex a management by day and on this channel we like to discuss all things personal finance we particular focus on how to grow your money but for this video let's get into it and let's start with why the UK stock market is suddenly more attractive at the moment the most obvious reason is a more stable political and economic environment over recent years our political landscape has been incredibly unstable with four prime ministers in the last four years and markets don't tend to like political uncertainty however now with Labor's landside election win it seems we may be returning to at least a few years of political stability we may also be returning to to economic stability with recent economic outlooks suggesting cause for optimism the bank of England have increased its growth forecast for the UK economy to 1.25% this year up from its previous estimate of 0.5% in May whilst UK interest rates have reduced for the first time in more than 4 years from 5.25% to 5% and more rate cuts are possibly on the cards before the end of the year of course a stable political and econom environment isn't enough alone to drive growth in the stock market but it certainly provides a better environment compared to what we've had over recent years over the last few years we've had red hot inflation a series of aggressive interest rate hikes and plenty of worries over economic growth this was likely one of the key reasons to why many investors have neglected the UK stock market the impact of this neglect has been pushing UK stock market valuations to exceptionally cheap levels and this brings me on to the second reason why the UK stock market is seemingly attractive at the moment and that's the fact that the market fundamentals are in our favor the most Why UK stocks are cheap common valuation metrics all suggest that UK stocks have been relatively cheap for a long time for example if we take a look at a basic price to earnings ratio the shill p ratio which divides the stock price by the average of a company's earnings for the past 10 years then we can see the UK stock market has a much more attractive PE ratio compared to the US and since 2009 that Gap has only been increasing it's not just a US effect either UK stocks are trading at a discount compared to Europe as well showing they're cheap relative to their International peers some may argue that this data is misleading as it's backward looking and doesn't show future growth prospects but even if we look at the Ford price to earnings ratio which accounts for future earning forecasts the UK still looks very cheap and significantly below the US and Europe even if we dig deeper into industry compar we can see that most UK Industries trade at a discount relative to us peers for example the UK energy sector is varied at 7.1 times the next 12 months earnings whereas the US Energy sector is varied at 11.1 times the next 12 months earnings this difference equates to a 30% discount between the UK energy sector and US Energy sector so it's clear that UK stocks are relatively cheap by valuation metrics but given they've been cheap for a number of years this alone is probably not enough to tempt investors so you may be thinking well how could this change and here we go back to reason one the difference now is that we have a stable political and economic environment and this may just provide a catalyst for investors to refocus on the positive attributes of many UK listed companies and and the valuation attributes of these companies in fact this is exactly what the UK Chief investment strategist for black root suggests he States although the UK Equity valuation was clearly attractive we lacked a catalyst to go overweight the potential for a more stable political environment provides this this leads to the third reason why UK stocks are currently attractive and that's the fact that there's renewed Institutional Investor interest as we found out at the start of the video institutional investors have switched from being net sellers to net buyers of UK equities since May this is a combination of many large fund managers beginning to increase their positions in the UK stock market for example James Thompson manager of a 4 billion RAF bone fund now has his largest holding of UK equities since 2016 at 6% whilst black crop the largest fund manager globally with 10.6 trillion under management moved to an overweight position on UK stocks in early July this trend may become even more significant over the coming years as the stability of the UK may become prominent compared to other developed countries with potential disruption in the US under a second Donald Trump presidency and France and Germany facing unstable coalitions the combination of stability and attractive valuations may make the UK a relatively safe bet for institutional investors which could spur performance in the UK stock market what New listings reinforces this for even further is the fourth reason why UK stocks are seemly attractive in that The Bleak period of a lack of new listings may be changing a number of global companies have recently announced plans to list on our stock market for example vivendi the French media conglomerate have announced plans to list its French TV business Canal Plus on the London Stock Exchange an even bigger win would be the Chinese fast fashion company xen which recently filed initial paperwork to begin the process of a listing despite ethical concerns about Shen as a company if you only look at the financials this could be a huge listing with a company potentially valued at 50 billion if they pull that valuation off it would put them in the top 15 of the footy 100 by market cap this along with canal now are huge wins as these companies could have listed elsewhere and follow the trend over recent years but many companies have done exactly that for example the British Semiconductor Company arm recently opted to list on the NASDAQ inste of the footy 100 despite many British politicians lobbying them to try and list on our stock exchange this trend has led to the UK stock market many being weighted towards slow growth companies such as Banks and insurers and companies which face challenges to their long-term prospects such such as oil and mining companies however hopefully this trend is beginning to change this is important as renewed interest in listing on the London Stock Exchange could bring optimism back to the stock market particularly if listings are from high growth companies so in summary for part Obstacles one of this video the combination of a stable political and economic environment attractive valuations renewed institutional interest and the potential for new listings makes UK stocks certainly seem more attractive however it's it's also important to consider potential obstacles to this in the next part of the video we'll focus on what may hold back UK stocks one obvious obstacle is a lack of retail investor optimism particularly among UK residents the financial times suggests that retail investors continue to sell out of UK Equity Funds withdrawing nearly 1.8 billion in May which was a record monthly amount the reason for the lack of optimism may be associated with some of the topics we touched on earlier such as political and economic instability which could improve recent changes however there are luckily more fundamental reasons for this neglect and one of these is a lack of incentives for retail investors to put money in UK companies there were plans under the last conservative government to provide an additional taxfree iser allowance when investing in British companies given there are 800,000 people in the country that currently maximize their existing 20K allowance if all these people were to take up the additional allocation that would add 4 billion into our Market Market which is a sizable sum there were also proposals to encourage Pension funds to invest more in the UK Market however with a new government at the helm it's unclear whether either of these plans will come into fruition at the moment investors are likely disincentivized to put money into UK companies because of taxes since we have a 0.5% stamp Duty on UK shares Which is higher than peer Nations If This Were to change along with other incentives for UK investors it may drum up more interest but until it does retail investing neglect will likely continue and be an obstacle to UK stock market performance the next obstacle is a lack Lack of Business Investment of business investment in the UK the UK has had the worst rate of business investment among the G7 for 24 of the last 30 years while new investment coming in from those outside of the UK in the form of foreign direct investment is at a 12year low this is a key barrier to growth as investment Fosters Innovation and progress and the lack of investment has likely contri Ed to the current productivity problems and skill shortages in the UK If we don't solve this it will likely provide a future barrier to economic growth and potentially hinder growth in the UK stock market labor have suggested that increasing business investment is a key priority with Rachel Reeves the UK's new Chancellor vowing to turn Britain into a safe haven for business investment so let's wait and see if progress is made here another obstacle is the composition of the foot although there's a sense of optimism about new listings the composition as of today is dominated by sectors such as oil tobacco and banking the companies Within These Industries may be multinationals making billions in Revenue but they're often lowly rated by investors there's also a lack of companies in sectors which are currently highly rated by investors such as technology tech stocks have boomed this year and made a frenzy over AI but the UK stock market hasn't been able to benefit too much from this because we lack Ai and tech companies this is not to say that there's no UK based tech companies there are many but unfortunately many recent high growth UK tech companies have chosen to list elsewhere such as arm we can only hope that new listings lead to a slight change in index composition bringing in more high growth companies we're certainly moving in the right direction to encourage this as we've just had the biggest overhaul of stock market listing regulations in 40 years the changes were focused on making it easier for higher growth and founder leg companies to list on our stock market exchange these changes need to continue to ensure the composition of companies on the footsie has a balance of high growth companies to complement many of the St warts already there so in conclusion the UK Conclusion stock market presents a promising opportunity we enhanced stability in the market with attractive valuations renewed institutional interest and the potential for some exciting new listings however challenges do remain with low optimism among retail investors a lack of business investment and a composition to the index which is way towards slow growth industries if the current government and specific Regulators are able to address these challenges particularly in providing incentives to investors and providing relative reform to encourage more investment and more exciting new listings then this could lead to a turn in the UK stock market and it could lead to growth but the question is would this be a temporary upswing or a long-term trends that's that's for us to find out thank you for watching the video and I'll leave you with a quote for war Buffet