FTSE 100’s recent rally still has plenty of legs says Panmure Gordon, despite concerns that the recent spike in UK share prices might soon run out of steam.
“UK valuations remain deeply subdued compared to their historic norms both on a relative and absolute basis,” with discounts only narrowing slightly to 17% from 19%, says the broker.
While the strength of the US is a factor, the UK’s decline cannot be explained by just that, added Panmure.
UK valuations are now 1.1 standard deviations below their long-term average compared to Asian markets at -0.3, the EU at -0.1 and the US at +1.6.
A price-to-sales ratio measurement also shows that the UK has moved from a historic premium to the rest of the world to a sustained discount since 2016.
On another growth metric, price to earning growth (or PEG), the UK’s rating is lowest at 1.5 times compared to Europe’s 1.7 times and the US at 2.3 times.
The good news is that “The UK discount - that has become self-reinforcing through falls in liquidity and relative performance - can unwind quickly, but will require 'concrete actions'".
Even so, the opportunity is "real, broad-based across all sectors and amplifies at the mid and small cap level".
“The opportunity for investors [in the UK] continues to hide in plain sight”, Panmure concludes.