Market Analysis

U.K. equity markets faced challenges last year but are performing better in 2024 compared to other European markets, according to JPMorgan. The investment bank's analysis suggests that UK equities are well-positioned for further gains.

In a note dated July 29, JPMorgan highlighted that UK equities are supported by attractive valuations, improved political stability, and the potential for lower bond yields, which enhance the appeal of dividend yields.

As of 05:25 ET (09:25 GMT), the FTSE 100 index was up 0.9% and has risen 8% year-to-date, reaching an all-time high in mid-May. The FTSE 250, which is more focused on domestic companies, increased by 0.2% and has gained approximately 8.7% this year.

JPMorgan's core outlook suggests that bond yields are likely to decline further, benefiting markets with higher yields. The UK, with a dividend yield of 4.1%, leads among major developed markets. The bank also noted that the UK’s dividend payout ratio is currently at 45%, compared to the historical average of 60%.

With the election uncertainty behind and a new government expected to bring more fiscal credibility and stability, the focus on domestic policies such as homebuilding and consumer spending is anticipated to favor certain sectors. Banks, homebuilders, real estate, and utilities are likely beneficiaries, while diversified financials, exploration and production, and transportation might face challenges.

JPMorgan pointed out that the UK market, trading at 11.5 times forward P/E, is near its historical lows compared to other markets.

After preferring UK large caps over small caps for the past two and a half years, JPMorgan has reversed its stance. The bank now favors the FTSE 250 over the FTSE 100, citing reasons such as past underperformance, lower valuations, potential Bank of England rate cuts, stronger domestic economic momentum, and more favorable domestic policies from the new administration.

Paraphrasing text from "Investing" all rights reserved by the original author.