Why is The UK Stock Market at Record Highs?

Which
Stocks
Have
Driven
The
UK’s
Bull
Market? 

Over
the
last
six
months
Rolls-Royce
Holdings
(RR) has
been
the
lead
driver
of
FTSE
gains.

The
stock,
a
standout
in
the
industrials
sector, jumped
82.03%
over
that
time
to
hit
a
record
high
of
432.4p,
and
is
now
ahead
of
Morningstar
analysts’
fair
value
estimate
of
380p.
As
a
maker
of
airline
engines,
Rolls-Royce
has
been
able
to
capitalise
on
the
travel
and
transport
boom
since
the
pandemic.

Antofagasta
(ANTO),
the
London-headquartered
Chilean
copper
mining
company,
comes
in
close
second,
having
delivered
a
61.06%
increase
in
its
share
price
over
that
same
period.
That
comes
from
lows
of
£14.17
to
its
current
high
of
£22.73,
as
the
business
continues
to
benefit
from
elevated
copper
prices.

NatWest
Group
(NWG),
the
British
banking
stalwart
whose
2023
was not
exactly
punctuated
with
brilliant
news
headlines,
also
helped
boost
the
FTSE
100,
with
the
company’s
share
price
jumping
55.04%
over
the
last
six
months.
Its
current
price
sits
at
316.60p,
some
way
above
Morningstar
analysts’
fair
value
estimate
of
280p.
As
banks
have
profited
from
higher
interest
rates,
the
idea
that
these
will
stay
“higher
for
longer”
have
helped
UK
banks,
which
profit
from
the
rising
cost
of
consumer
and
mortgage
debt.

Housebuilders
have
also
risen
this
year
as
economic
conditions
improve
and
developers
anticipate
interest
rate
cuts
and
a
potential
change
of
government
which
could
see
a
relaxation
of
planning
rules.
Shares
in
large
developer
Persimmon
(PSN),
are
up
15%
in
the
last
six
months
as
sentiment
improves.

A
Sustainable
Shift
Towards
UK
Stocks?

Abby
Glennie,
deputy
head
of
smaller
companies
at
abrdn,
lead
manager
of
the

abrdn
UK
Mid-Cap
Equity
fund and
co-manager
of

abrdn
UK
Smaller
Companies,
feels
the
FTSE’s
gains
reflect
global
sentiment
shifting
in
favour
of
the
UK.  

“Flows
have
improved
towards
the
UK
market
and
UK
sectors,”
she
says.

“A
lot
of
the
fund
manager
surveys
have
put
the
UK
back
towards
the
most
preferred
incremental
areas.
People
were
coming
from
very
low
levels
of
allocation,
but
now
they
are
saying
that
the
UK
is
the
place
to
keep
your
money.”

Exuberant
positivity
around
the
US
economy
has
also
begun
to
ease,
she
says,
as
inflation
hangs
around
and
markets
defer
the
timing
of
rate
cuts.
This
is
another
factor
in
investors
reconsidering
the
case
for
investing
in
UK
public
markets.

“One
of
the
negatives
the
UK
has
found
in
recent
years
is
that
it
has
not
had
the
big
AI
exposure
that
the
US
market
has.
But
we
are
now
in
a
good
point
in
the
cycle
whereby
a
decent
chunk
of
industrial
and
domestic
cyclicals
are
now
lifting
the
whole
UK
market,”
she
continues.

Why
is
The
UK
Stock
Market
Rallying?

Broader
consolidation
partly
explains
the
rally,
says
Laura
Foll,
portfolio
manager
at
Janus
Henderson,
and
manager
of
Henderson
Opportunities
Trust
(HOT),
Lowland
Investment
Company
(LWI)
and

Janus
Henderson
UK
Equity
Income
and
Growth.

“Household
names”
are
now
up
for
grabs
by
hungry
peers.

“We
are
seeing
takeovers
across
the
breadth
of
the
UK
market
and
across
a
whole
host
of
different
sectors,
and
they
are
increasingly
large
companies
as
well,”
she
says.

“Before
we
were
seeing
quite
a
few
smaller
companies
be
bid
for.
Those
often
go
under
the
radar.
But
now
we
are
seeing
household
names
that
are
suddenly
fair
game.”

One
such
proposed
deal
concerned
British
multinational
mining
giant
Anglo
American
(AAL),
which
recently
rejected
a
£34
billion
bid
from
rival
BHP
Group
(BHP).
Shares
in
the
company
are
up
18.6%
over
the
past
six
months
as
investors
price
in
the
prospect
of
more
potential
buyers
entering
the
fray.
BHP
has
another
week
to
make
an
improved
offer.

Paper
packaging
brand
DS
Smith
(SMDS) has
agreed
to
a
£5.8
billion
takeover
deal
by
its
bigger
US
rival
International
Paper
(IP),
however.
And
over
in
the
FTSE
250,
Royal
Mail
owner
IDS
(IDS)
is
also
likely
to
accept
a
takeover
bid
of
£3.5
billion
from
Czech
billionaire
Daniel
Kretinsky’s
EP
Group.  

A
Domestic
Revival
to
the
UK
Stock
Market?

But
something
of
a
material
change
has
occurred
too.
Around
25%
of
listed
UK
company
revenue
is
derived
from
the
UK
domestic
economy.
Improvements
on
the
ground
are
now
showing
in
share
prices.

“Remember:
about
three
quarters
of
earnings
come
from
overseas,”
she
says.

“There
is
still
25%
here
in
the
UK,
and
it
has
more
of
an
effect
as
you
go
down
the
market
cap
scale.
There
is
more
exposure
to
the
domestic
economy,
and
it
seems
to
tentatively
be
doing
better.”

In
2025,
the
IMF
expects
growth
in
the
UK
to
reach
1.5%,
more
than
double
the
2024
growth
figure,
as
real
incomes
are
supported
by
slowing
inflation
and
easing
wider
financial
conditions.

But
it’s
not
all
good
news.
The
IMF
still
expects
the
UK
economy’s
longer-term
growth
to
remain
subdued
because
of
weak
labour
productivity
and
illness-related
inactivity. 

In
addition,
while
positive,
the
story
under
the
bonnet
of
the
UK’s
latest
inflation
figures
suggests
the
Bank
of
England
(BoE)
may
delay
rate
cuts.
UK
consumer
price
inflation
decreased
to
3.2%
in
March
and –
according
to
fresh
figures
this
week –
sat
at
2.3%
in
April,
just
over
the
BoE’s
target
of
2%.

Services
inflation
remains
sticky,
however,
and
could
prompt
yet
more
caution
from
the
Bank’s
Monetary
Policy
Committee,
or
MPC.

So
what
is
there
left
to
tempt
investors?

While
all
that
plays
out,
UK
companies
have
continued
to
buy
back
shares,
which
at
least
provides
a
short-term
boost
to
share
prices.
Foll
is
convinced
this
is
partly
what
is
helping
the
rally
continue
amid
uncertain
economic
news.
It
certainly
mirrors
a
US
trend.

“People
are
frustrated
at
the
valuations
of
their
companies
so
if
you
[have]
excess
cash,
you
can
either
do
a
special
dividend
or
buy
back
your
own
shares.
Often
shares
are
trading
at
valuation
discounts
in
comparison
to
overseas
peers,”
Foll
says.

“There
is
also
a
growing
number
of
US
shareholders
on
company
registers,
and
those
who
have
a
long
history
of
seeing
returns
via
buybacks.
[They’re]
often
telling
their
company
boards
they
want
to
buy
back
rather
than
receive
a
special
dividend.”

How
does
The
UK
Stock
Market
Compare
to
Others?

Laith
Khalaf,
head
of
investment
analysis
at
AJ
Bell,
reminds
investors
that,
despite
the
enthusiasm,
the
UK’s
markets
have
still
fallen
short
of
indices
in
the
US,
Europe
and
Japan,
which
have
all
hit
record
highs
recently.
Over
the
last
twenty
years,
US
stock
markets
have
significantly
outperformed
their
European
peers.

“The
UK
still
has
significant
ground
to
make
up
on
international
peers
to
regain
some
ballast
in
the
global
stock
market,”
he
says.

“The
UK
weighting
in
the
MSCI
World
Index
currently
stands
at
4%,
down
from
around
10%
just
over
a
decade
ago.
Probably
the
biggest
swing
factor
that
could
improve
the
UK’s
lot
is
a
pullback
in
the
US
stock
market.”

But
a
softer
US
market
could
have
an
impact
here
too:

“There’s
no
sign
of
that,
as
the
S&P
500
continues
to
crunch
upwards,
and,
in
any
case,
a
bad
spell
for
the
US
market
could
well
have
knock-on
negative
effects
for
sentiment
on
this
side
of
the
pond,”
he
adds.

Rachel
Winter,
partner
at
Killik
&
Co,
sees
more
value
in
small
and
mid-cap
opportunities,
arguing
that
investors
should
not
let
their
excitement
around
the
UK’s
large-cap
companies
distract
them.  

“The
recent
record
high
for
the
FTSE
100
signals
investors
are
capitalising
on
the
relative
cheapness
of
the
domestic
market
compared
to
the
US,”
she
says.

“We
see
particular
value
in
UK
small
and
mid-cap
companies,
which
are
trading
at
large
discounts
to
their
large-cap
peers
and
could
be
well
set
to
benefit
from
eventual
rate
cuts.”

For
now,
investors
await
further
economic
updates,
and
the
arrival
of
fresh
blood
on
the
public
markets.
Shein,
and
the
computer
company
Raspberry
PI,
are
among
this
year’s
IPO
hopefuls.
Both
have
bolstered
hopes
the
UK
can
regain
its
international
standing
in
capital
markets
–

and
we’ve
written
about
Shein’s
potential
flotation
here.

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