Brexit Britain may be a diminished actor on the world stage but beaten-down UK equities now represent the trade of the decade.
That's according to a new paper by Research Affiliates founder Rob Arnott. UK stocks lagged following the global financial crisis, Arnott notes, before being hit by two further shocks – Brexit and Covid-19.
He points to the UK’s successful vaccination programme and greater visibility following the UK-EU Brexit deal as grounds for optimism, but his enthusiasm is largely based on valuation. At the end of 2020, price-book, cash-flow and price-sales ratios all suggested UK stocks were very cheap relative to history.
Back in 2016, Arnott said emerging markets represented the trade of the decade. Emerging markets remain inexpensive today, but the UK is now priced to deliver even better returns with significantly less volatility.
However, the US outlook is less sunny; over the last 60 years, the US has rarely looked as expensive.
Arnott likes value stocks in general, and is not just keen in the UK. Growth has been the place to be over the last decade; consequently, in almost all countries, value-to-growth discounts are at levels rarely seen before, he says.
There has been much talk of a rebound for global value stocks in 2021. If Arnott is right, that rebound is only just getting started.
