15th December 2020
“Doubt is not a pleasant condition, but certainty is absurd”
Voltaire in 1767
Confidence is a vital, perhaps THE vital, driver of markets. As I write, there is evidence that confidence in the UK stock market is rising.
Since the 2016 referendum, belief in the UK as an investment destination has been on the wane – there was simply too much uncertainty, and investors loathe uncertainty. The result is great value – the UK stock market has not been this cheap relative to the rest of the world since the 1970s.
Then along came Pfizer Monday, 9th November, and markets around the world responded with massive enthusiasm to the prospects of their vaccine. But the UK stock market in particular stood out.
In just 3 days, some UK funds which we have been highlighting for some time went up by more than 10%. That is remarkable for funds in such a mature stock market as the UK.
Even the UK market as a whole (FTSE 100 index) went up 7.99%. This reflected that the UK has a lot of companies which will benefit from a post-vaccine economic recovery – so called cyclical businesses. But so does continental Europe, and their markets went up by only 2.51%, with the US and Asia some way behind even Europe.
All of a sudden the UK really was world-beating! Was it a fleeting moment to be savoured, or a fundamental change which will endure?
Global investors are very under-invested in the UK. Once they feel more confident, this will be a big driver of our home stock market (and the wider UK economy). The evidence is that they began to feel more confident from 9th November.
Can this thinly veiled positivity on our part be reconciled with problems with the Pfizer vaccine? The renewed and ugly pandemic trends across Europe and the US? The possibility of a hard Brexit? The US investment mania?
The Pfizer vaccine has a number of limitations, but there are a string of others which will emerge in weeks ahead. Each one will help us all look to calmer and less stressful times in 2021. And in a few week’s there will also be certainty over Brexit.
That leaves the US investment mania, which we address in the next column.
Overall, we observe greater confidence in the UK, and that is a band-wagon we jump on with cautious optimism.