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May 17, 2021, 11:43 a.m. EDT

U.K. underperforms during value rallies, says JPMorgan Cazenove as it keeps neutral on the region

By Steve Goldstein

JPMorgan Cazenove on Monday said U.K. stocks will continue to underperform rivals in the eurozone and the U.S.

Strategists led by Mislav Matejka kept U.K. stocks at neutral, a position it has held since last summer when it closed out a multiyear short.

U.K. stocks have underperformed and look cheap on most valuation measures, the strategists said. Recovering dividends are a support, and the U.K. is a clear leader in the COVID-19 vaccinations drive.

The downside, the strategists said, is that the U.K. has lagged behind the eurozone during value rallies in the last 10 years. The U.K. typically lags behind when bond yields rise.

Given that almost 80% of the revenue of FTSE 100 companies comes from outside the U.K., the index has little sensitivity to U.K. growth, the strategists added. “We believe U.K. risk-reward is better than it was for a long time, and that the FTSE 100 will keep moving higher on a 6-12 month horizon, but likewise think that, while not an underweight anymore, the U.K. will perform as a neutral in the European portfolio, exactly as it is doing so far year-to-date,” the strategists said.

The broader FTSE 100 (FTSE:UK:UKX) traded lower, ending 0.2% in the red but finishing above the 7,000 level it briefly lost during the day.

Asian-focused banks Standard Chartered (LON:UK:STAN) and HSBC Holdings (LON:UK:HSBA) each fell, as Taiwan and Japan announced new restrictions due to rising COVID-19 cases. Engine maker Rolls-Royce (LON:UK:RR) slipped 4%.

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