UK share performance has been disappointing this year but the outlook is brightening and analysts at RBC Capital have removed their negative stance on London stocks, even though remain cautious.
The FTSE All-Share Index has been hit by its tilt towards defensive and value sectors, which has made it vulnerable during periods when growth stocks are favored, said Thomas McGarrity, the head of equities for RBC Wealth Management in the British Isles.
Furthermore, the pound's appreciation against the US dollar until midsummer weighed down the index, given its companies majorly earn abroad.
However, McGarrity says prospects “may be improving" as the pound weakens.
“Investors are hoping that the Bank of England’s recent decision to pause rate hikes could be a positive catalyst."
The FTSE 100, he noted, typically outperforms when value stocks outperform growth stocks given the index’s bias to “old economy” industries such as energy, mining and banks, with rising oil prices helping to buoy the energy sector in recent weeks.
As a result, he said RBC is upgrading UK equities to from 'underweight' to 'market weight'.
“We acknowledge the challenging domestic economic prospects and remain cautious on domestic stocks.
“But we would be alert to opportunities in the energy sector, as well as in leading globally diversified, high-quality businesses whose valuations remain at a notable discount versus international peers listed in other markets.”