Bullish bets on UK assets take a knock as budget looms
By Naomi Rovnick
LONDON, Oct 7 (Reuters) -Investors are retreating from bullish bets on Britain as hopes of its new Labour leadership reviving growth and investment are overshadowed by concern about the debt-laden economy and the government hiking taxes in this month's budget.
After sizzling summer rallies, sterling has faltered and UK stocks, which bounced back sharply from depressed valuations this year, are turning lower.
The sentiment shift comes after Prime Minister Keir Starmer and finance minister Rachel Reeves struggled to balance their ambitious growth messageswith gloomy assessments of UK finances, and as economic trends have deteriorated.
Premier Miton Global Investors chief investment officer (CIO) Neil Birrell said he had cut a hefty British stock allocation in his multi-asset funds from 45% of global equity holdings to 30% just days ago.
POSITIVITY WANES
"We have been positive on the UK for some time and had very significant exposure," Birrell said.
"But this is risk management. I was worried about the level of UK exposure we had," he added, citing declining trends in UK business and consumer confidence and nerves about potential budget tax hikes weighing on growth.
Investors pulled a net 666 million pounds ($874 million) out of UK stock funds in September, fund tracker Calastone said on Thursday, while adding money to all other geographically focused fund sectors, favouring U.S.-focused vehicles.
Ahead of the Oct. 30 budget, UK business optimism has slumped to nine-month lows, having surged in the summer, and markets are bracing for higher capital-gains tax and bank levies.
Britain's FTSE 100 share index is trading at a 46% valuation discount to Wall Street's S&P 500, almost the widest on record.
The UK-focused FTSE 250 index .FTMC gained about 16% from mid January to late July in a strong catch-up trade but is on track for a 2.4% fall this week.
BUDGET CAUTION
Marlborough CIO Sheldon MacDonald said investors in the group's UK equity funds had started taking profits in the last two weeks, which he attributed to pre-budget caution.
"People are watching and waiting to take the measure of Labour and see if they have a feasible and thought-through plan for the next few years," he said.
But he also tipped lowly valued UK stocks and underperforming government bonds to recover if the Bank of England cuts interest rates faster than expected.
Michael Crawford, CIO at Chawton Global Investors, said he was concerned Labour might scrap inheritance tax breaks that incentivise investment in stocks listed on Britain's junior AIM market.
Finance minister Reeves has hinted she may redefine how Britain's public debt is measured or limited, in a move that could unsettle Britain's lenders in international bond markets.
DEBT WOBBLES
UK gilt GB10YT=RR yields, which move inversely to prices of the government debt and set state borrowing costs, have risen 25 basis points (bps) in two weeks as equivalent German yields fell DE10YT=RR.
Adding to debt market pressure, traders expect UK interest rates will stand at about 3.5% in a year' time, compared with around 3% in the U.S. and 1.7% in the euro zone, even after dovish hints from BoE governor Andrew Bailey on Thursday.
Sterling remains this year's top-performing major currency against the dollar but is on track for its worst weekly drop since April, which Deutsche Bank analysts said partly reflected traders rethinking long-held bullish positions GBP=D3.
SUBMERGING MARKETS
The recent allure of UK assets, which were long overlooked after 2016's Brexit vote, is fading just as emerging markets that benefit from Chinese stimulus grab investor attention.
Royal London Asset Management multi-asset head Trevor Greetham said he had reduced UK equity holdings to switch money into emerging markets, where stocks are now racing ahead of their British equivalents.
Janus Henderson equity portfolio manager James Henderson said investors may have turned too negative on Britain and planned to raise his UK exposure and cut in the U.S.
"There's opportunities for things to turn out a little better than expected," he said.
UK consumer confidence fell sharply in September https://reut.rs/3ZJN6LW
Emerging market stocks have begun racing ahead of the UK https://reut.rs/3TWa2nL
Sterling's rally goes into reverse https://reut.rs/3XUtq5P
Surprise, surprise: U.S. economic surprise index turns positive https://reut.rs/3zH1b2h
UK gilts trail US and German government debt https://reut.rs/3TZ0eJx
Reporting by Naomi Rovnick; Editing by Dhara Ranasinghe and Hugh Lawson
Aloqador aktivlar
Eng oxirgi yangiliklar
Javobgarlikdan voz kechish: XM Group korxonalari har biri faqat ijro xizmatlarini koʻrsatadi va onlayn savdo platformamizdan foydalanish huquqini beradi, bu odamga veb-saytda yoki veb-sayt orqali mavjud boʻlgan kontentni koʻrish va/yoki undan foydalanishga ruxsat beradi hamda uni oʻzgartirishga moʻljallanmagan va uni oʻzgartirmaydi yoki kengaytirmaydi. Bunday kirish va foydalanish huquqi doimo quyidagilarga boʻysunadi: (i) Shartlar va qoidalar; (ii) Risklar haqida ogohlantirish; va (iii) Javobgarlikni toʻliq rad etish. Shuning uchun bunday kontent umumiy maʼlumot sifatida taqdim etiladi. Xususan, shuni esda tutingki, bizning onlayn savdo platformamiz mazmuni moliyaviy bozorlarda biror bitimni amalga oshirishga oid maslahat yoki taklif emas. Har qanday moliyaviy bozorda savdo qilish sizning kapitalingiz uchun jiddiy risk darajasini oʻz ichiga oladi.
Onlayn savdo platformamizda chop etilgan barcha materiallar faqat taʼlim/axborot maqsadlari uchun moʻljallangan va unda moliyaviy, investitsiya soligʻi yoki savdo maslahatlari va tavsiyalar; yoki bizning savdo narxlarimizning qaydlari; yoki har qanday moliyaviy vositalar bilan bitim tuzish maslahati yoki taklifi; yoki sizga kerak boʻlmagan moliyaviy reklama aksiyalari hisoblanmaydi
Har qanday uchinchi tomon kontenti, shuningdek XM tomonidan tayyorlangan kontent, masalan: fikrlar, yangiliklar, tadqiqotlar, tahlillar, narxlar va boshqa maʼlumotlar yoki bu veb-saytda joylashgan uchinchi tomon saytlariga havolalar umumiy bozor sharhi sifatida "boricha" taqdim etiladi va investitsiya maslahatini tashkil etmaydi. Har qanday kontent investitsiya tadqiqoti sifatida talqin qilinsa, siz bunday kontentni investitsiya tadqiqotlarining mustaqilligini ragʻbatlantirish uchun moʻljallangan qonun talablariga muvofiq moʻljallanmagan va tayyorlanmaganligini eʼtiborga olishingiz va qabul qilishingiz kerak, shuning uchun unga tegishli qonunlar va qoidalarga muvofiq marketing kommunikatsiyasi sifatida qaraladi. Mustaqil boʻlmagan investitsiya tadqiqoti va yuqoridagi maʼlumotlarga oid risk haqida ogohlantirishimizni oʻqib chiqqaningizga va tushunganingizga ishonch hosil qiling, unga bu yerdan kirish mumkin.
