INVESTMENTS

Could 2021 be a breakout year for UK equities ? A combination of improving fundamentals , attractive valuations , and returning dividends are strong catalysts for performance in 2021 , with share prices benefiting from improving sentiment as vaccines are rolled out and life begins to return to normal . With 50 % of FTSE 250 earnings coming from overseas , the UK market will also benefit from any wider pick-up globally .

UK EQUITIES TEAM AT AXA IM

for investing in the UK today , and why UK-based investors , in particular , should be considering their home market . While international sentiment has been poor in the aftermath of the Brexit referendum , this is unlikely to hold back the UK in 2021 , as global investors have largely rotated out of the market . In fact , there is potential for UK stocks to re-rate upwards if we see a reappraisal from international investors . For the meantime , however , the clear catalyst for UK equities is the end in sight to the COVID-19 pandemic , with a vaccine rollout now underway .

A shot in the arm for shares While the shape of UK growth depends on the speed of the vaccine rollout , we should see an improvement in 2021 . Our economics team forecast a rebound of 3.5 % in 2021 ( taking into account the most recent lockdown ) and 7.5 % in 2022 , the fastest since the 1980s . While our figures are predicated on relatively cautious assumptions , the UK could see faster growth in 2021 depending on the vaccination programme . The economy should benefit from the usual post-recession rebound , while there is also substantial pent-up demand from consumers , with household savings surging to a record level during the first nationwide lockdown . While the deal between the UK and EU does create barriers to trade , it should at last provide certainty for businesses . The initial reaction of the FTSE All-Share to the deal shows how the market can now begin to put Brexit uncertainty behind it .

Standout developed market on valuation grounds UK shares look attractive on a wide range of valuation metrics , even after the market ’ s sectoral make-up is taken into account . On a price / earnings basis , for example , UK shares are the cheapest relative to their American counterparts than at any time since the creation of the FTSE 100 . The UK market retains this valuation advantage on more sophisticated measures too . Robert Shiller , the American

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