Home Forex With new UK leader, pound remains vulnerable but shares attractive – UBS

With new UK leader, pound remains vulnerable but shares attractive – UBS

by SuperiorInvest

The easing of political uncertainty with the appointment of new British Prime Minister Liz Truss last week did not immediately help the pound. Cable fell to its weakest intraday level against the US dollar since 1985, bringing its year-to-date decline to close to 15%. But UK shares have held up well, up 0.5% so far in 2022 versus -17.5% for global suppliesand UBS economists expect this outperformance to continue.

Earnings growth should be supported by a weaker pound

“We do not expect the new government’s policies to do much to support the pound in the coming months. Indeed, the widening budget deficit could become another headwind for the pound as the new prime minister proposes tax cuts and higher spending, starting with a package to curb rising energy bills.

“FTSE 100 companies generate around 75% of their revenue outside the UK, meaning the market is less sensitive to domestic growth concerns. It also means that earnings growth should be supported by a weaker pound.”

“From a valuation perspective, the FTSE 100 trades on a 12-month forward P/E of 9.4x, an attractive 35% discount to the MSCI All Country World Index.”

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