Global investors shun UK market amid stagflation fears
Britain has become the least attractive market to invest in among global fund managers, with sentiment towards UK stocks slumping.
Stock pickers held 18 per cent less UK shares than their benchmarks suggested they should in February, compared to a 12 per cent overweight position on European stocks, according to Bank of America’s latest Global Fund Manager survey.
The bank’s survey shows UK equities ranking at the bottom of 18 markets and sectors including bonds, cash, energy, utilities and other global markets.
The findings come as Bank of England Governor Andrew Bailey acknowledged that the UK is experiencing a “weak growth environment”. Speaking at an event in Belgium, Bailey also warned about the impact of “global fragmentation” in the world economy.
Meanwhile the Chancellor, Rachel Reeves, has summoned major investment banks and asset managers for talks in Downing Street as she continues to seek input to the government’s flagging growth agenda.
Bank of America found the gap between holdings of UK equities and global equities was maintained at its record high level, causing investors to cut their position in UK stocks by about two percentage points compared to last month.
Elyas Galou, the bank’s Director of Global Investment Strategy, told The Telegraph: “The UK is the living definition of stagflation. On the one hand you have subdued growth, which is related to very low productivity, and the other big reason is inflation.”
He added: “When I speak to investors I often ask when was the last time you heard some positive news about the UK, and they struggle to answer. It is a growth problem.”
Net per cent of investors that are overweight UK stocks
Despite the poor views of the UK markets, investors were overwhelmingly positive about the global economy, with fear of a global recession sinking to a three year low.
Only 16 per cent of investors said the global economy was likely to experience recession in the next year, returning to the point achieved before the Russian invasion of Ukraine.
This led the amount allocated towards cash by fund managers to drop to its lowest since 2010, as investors continued to invest in riskier assets like US stocks.
77 per cent of investors said they were expecting the US Federal Reserve to cut interest rates this year, compared to just one per cent who expected the Fed to hike rates.
Despite confidence in a strong performance from the global economy, 39 per cent of investors said a trade war triggering a global recession was the biggest risk for growth, overtaking a re-emergence of inflation at 31 per cent.
Meanwhile, sentiment towards the Chinese economy began improving again for the first time in months.
48 per cent of investors expected faster Chinese economic growth over the next 12 months, up from 41 per cent in January and the first improvement for the country not incited by stimulus announcements in years.