To Buy British, Think Bonds and Not Stocks
It's not often that UK stocks are singled out as a " favorite geopolitical hedge," as Citigroup Inc. strategists boldly stated last week. So perhaps the elegant stance would be to simply take the rare praise when it's so kindly offered. However, Citi's Beata Manthey pointed to the wrong asset class. UK equities are hovering near an all-time high and seem incapable of making the next leap higher. Instead, a better alternative might be sterling corporate bonds, which offer juicy yields and better downside protection.
The main FTSE 100 index has risen 8% this year, and twice that in dollar-equivalent terms. That looks great versus a less-than 2% gain for the S&P 500 index. Nonetheless, it's only half the stellar gains seen in several euro indexes, and the more domestically representative FTSE 250 index is up less than 3%. But a longer perspective is needed. Despite a great first half, European gains remain puny versus the mighty US equity market, which has nearly doubled since the start of 2020, versus a 28% gain for the Stoxx 600 index, and just 16% for the moribund FTSE. It's all about potential earnings growth, or the lack of it, as UK equities tread water with the sorry state of the economy.
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