LIVE MARKETS-The bright spots in UK domestic stocks

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THE BRIGHT SPOTS IN UK DOMESTIC STOCKS

The UK investment outlook is in the spotlight this week after the Bank of England slashed the base rate just as a US-UK trade deal was announced; sweetening the mood towards UK assets.

The FTSE 100 is shining, but the domestically-focused FTSE 250 .FTMC is lagging this year - down 0.1% compared to a 4.9% gain for blue-chips - yet according to Barclays, the narrative for the FTSE 250 is improving.

They turned overweight on the sector this week, citing lower rates and progress on trade.

And some bright spots are already emerging.

Tim Service, head of UK mid and small cap equities at Jupiter Asset Management said sectors exposed to the UK economy are doing well despite their cyclical nature.

"Since the big Trump tariff announcement, clearly we are more likely to have a global recession ...but what has been interesting is the comparative strength of the FTSE250 and the market leadership within it," he said, flagging UK housebuilders.

A basket of FTSE 350 homebuilders .FTNMX402020 is up 7.4% this year.

Service also pointed out the retail sector's performance, which is strong despite being even heavily exposed to the economy.

"If you’re a retailer in the UK, buying clothes and manufactured products directly from a country like China, China is going to have a lot of things to sell. It is possible that gross margins for the likes of Next, B&M, Marks and Spencer may get a tailwind," he said.

A basket of FTSE 350 retailers is up over 11% this year so far.

Michael Stiasny, head of UK Equities at M&G Investments told Reuters that UK domestics are seen as a reasonably sheltered place from some of the wider impact of tariffs, also flagging the discount level of UK stocks generally.

"A lot of people say the UK is full of old sectors, that are not that exciting... we don’t have technology etc, so you need to adjust for that. But even on a neutralised basis the UK is trading at a level of discount it hasn’t seen for many years," he said.

The FTSE all-share .FTAS is trading on a PE ratio of 15.3 according to LSEG Workspace, a hefty discount to the S&P 500's 24.8 times.

(Lucy Raitano)

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