Why 2024 could finally be the UK’s year

Since the divisive 2016 referendum on EU membership, the UK has struggled to attract international investors. However, according to fund managers at Artemis, a shift may be on the horizon. As Prime Minister Rishi Sunak hints at an upcoming general election and with the Labour party leading in the polls, there's anticipation of significant political change. Despite this uncertainty, Artemis’ equity managers suggest that the UK's growth story might just be starting, signaling a potential turnaround for the market.

Resilience Amidst Challenges

The UK's resilience amidst challenges such as Brexit and the pandemic surprises investors. Consumer discretionary stocks outperformed expectations in 2023, benefiting from starting the year with low valuations. Ed Legget and Ambrose Faulks, UK equity fund managers at Artemis, attribute this resilience to factors such as wage growth, low unemployment, and government support.

Research from The Resolution Foundation suggests that despite concerns about rising interest rates, the UK consumer has generally benefited, with higher savings rates offsetting increased mortgage costs.

Election Impact and Market Outlook

The upcoming general election is poised to dominate headlines and could raise concerns among investors. However, Henry Flockhart, another UK equity fund manager at Artemis, notes a shift towards the center ground in both major parties, potentially leading to stimulatory policies around housing and tax.

Despite Labour's lead in the polls, there's the possibility of an economic boost under Sunak's leadership, with real earnings growth anticipated for the average UK consumer. Additionally, the market is likely to respond positively to the clarity brought by an election result.

Leveraging Low Valuations

Despite remaining relatively cheap compared to global markets, the UK has yet to fully recover its pre-referendum valuations. Nevertheless, fund managers advocate for buying into the domestic market, citing unprecedented levels of share buybacks by UK companies. This strategy concentrates earnings and dividends, making remaining shares more attractive, particularly with international investors beginning to show renewed interest.

Nick Shenton, a UK equity fund manager at Artemis, highlights significant share buyback activities by companies like BP and NatWest. These efforts, combined with the return of international investors, could signal a turning point for UK equities.

Conclusion

Whether the UK leans towards red or blue post-election, signs indicate a potential shift in its investment landscape. After years of uncertainty, the return of international investors and strategic actions by UK companies suggest brighter prospects ahead. As the country navigates political changes, it seems that the clouds hanging over its market may finally be dissipating.