LIVE MARKETS-Cheap UK stocks to outperform, dividends and domestics stand out - JPM

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CHEAP UK STOCKS TO OUTPERFORM, DIVIDENDS AND DOMESTICS STAND OUT - JPM

UK stocks have been outperforming their European counterparts since the first quarter of 2024, a trend that JP Morgan thinks will continue, as investors turn to dividend strategies and domestics get a boost.

"The UK has traditionally been a low beta, defensive market, which performs well on a relative basis during downturns. Positioning is light. If global equities consolidate, the UK could be a relative winner," writes JPM's equity strategy team.

It also helps that UK stocks are trading at near record cheap levels, having de-rated strongly post-Brexit. This remains true even if you exclude banks and energy from the calculations, says JPM.

According to LSEG Workspace, the FTSE 100 .FSTE is trading at around 11.1x on a 12-month forward PE ratio, compared to 21.3x for the S&P 500 .SPX

The region also offers the highest dividend yield of the big developed markets, even excluding commodity sectors.

"...dividend strategies are likely to gain traction if our view that bond yields move lower is vindicated," says JPM.

And so if investors do turn to dividend strategies, the UK's high proportion of income funds could benefit.

JPM prefers the domestically-focused FTSE 250 .FTMC over the blue-chip FTSE 100 .FTSE, a position originating from the bank's June 2024 reversal of its long-held large caps overweight.

A stabilisation in GBP should help this "FTSE 250 vs FTSE 100 trade", and UK domestics also tend to rally as the Bank of England begins cutting rates.

(Lucy Raitano)

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