British blue chips are now firmly on the bargain list according to top US investment bank Morgan Stanley (NYSE:MS), which is predicting a wave of takeovers among mid-caps when sentiment starts to improve.
UK equities are the worst performers this year relative to Europe and other major markets, says the bank, due to concerns about the economy as interest rates rise and inflation stays high.
As a result, valuations are below rivals elsewhere although Morgan Stanley (NYSE:MS) does not see big-caps stocks outperforming global peers over the next few months.
For UK mid and small-cap equities the story might be different, as these would be attractive if inflation starts subsiding and lifts economic sentiment, says the bank.
Graham Secker, a strategist at Morgan Stanley (NYSE:MS), said: “Investor pessimism towards the UK is currently high; however, sentiment could shift if inflation starts to subside.”
He lists BAE Systems, Ashtead Group, BP, Smith & Nephew, Haleon, Prudential, Rio Tinto, AstraZeneca and SSE among the bank’s top blue chip picks.