Goldman Sachs thinks Britain’s stock market will outperform US and EU benchmarks this year and is bullish on small and mid-cap stocks too.
The US investment bank expects British equities will deliver 9% returns over 2024, beating projected returns from the S&P 500, leading euro-zone markets and Japanese stocks.
Over the next five years, the Wall Street bank expects average annual returns of 6% from UK stocks, which is among the highest returns of all asset classes looked at.
Goldman explained the FTSE 100 trades on a substantial discount to its historical valuation and with heightened geo-political risk, looks “attractive with its heavy weights in oil and large-cap defensives”.
“Finally, buybacks have increased sharply among the larger cap stocks, and we continue to see this as a major support, especially given that the combined yield (dividend and buyback) on UK equities is now above 6%,” it noted.
It is also upbeat on UK small and mid-cap indices despite recent strength.
“We think the economic backdrop remains reasonably supportive for UK small/mid cap stocks,” Goldman said.
It highlighted the strong labour market, real wage growth and improved consumer confidence, while it expects GBP/USD to rise over the next 12 months to 1.35 (from 1.27), acting as a drag on the larger-cap, more international, names.