LONDON (Reuters) -Britain’s stock market finally appears to be reversing years of underperformance against the rest of Europe, as a UK-US trade deal, lighter regulation and cheap stocks deliver juicy returns that are starting to attract foreign investors.
The FTSE 100 (^FTSE) has gained nearly 10% this year to hit record highs this week, beating the STOXX 600 (^STOXX), which is up 7.5%.
On a year-to-date basis, London’s blue-chip index has performed better than its European counterpart for the last six weeks, its longest such stretch since late 2022, when a weak pound beefed up revenues for the export-focused FTSE.
This week, the financial regulator said it will roll out new rules to boost Britain’s capital markets, while Chancellor Rachel Reeves told the financial industry to paint a less negative picture of UK stocks for would-be retail investors, as she seeks new ways to revive a stagnating economy.
For foreign investors, the blue-chip index is already looking appealing given sterling’s rally this year, while asset managers say the narrative around the UK is shifting.
“We are seeing signs of big asset allocators coming back to the UK,” Justin Onuekwusi, chief investment officer at St. James’s Place. “I am talking about non-UK endowments, pension funds, asset owners, wealth managers who were all very underweight the UK post-Brexit,” he said.
In dollar terms, the FTSE 100 is up nearly 18% so far this year, set for the biggest dollar-denominated returns since 2009, compared with a 6% year-to-date gain in the S&P 500 (^GSPC), which has also hit record highs.
The pound, up 7% this year against the dollar as investors turn away from U.S. assets in response to heightened U.S. policy uncertainty under U.S. President Donald Trump, acts as a headwind for FTSE constituents, 80% of whom get their revenues from overseas.
Yet the index’s wealth of large defensive companies, including healthcare, utilities and food retailers, help insulate it against swings in the underlying economy, like drugmaker AstraZeneca or supermarket chain Tesco
It also has growth-sensitive resource stocks such as Anglo American (AAL.L, AAUKD) and BP (BP, BP.L) to tap into strength in oil, copper and gold.
Britain meanwhile is one of the few economies facing less trade uncertainty with a U.S. trade deal in place. In contrast, the European Union faces the threat of 30% tariffs if there is no agreement by August 1.
‘TEA AND BISCUIT’
“The UK stock market is the calming cup of tea and biscuit in an uncertain world. There’s nothing fancy on offer, just reliable names that do their job day in, day out,” AJ Bell investment analyst Dan Coatsworth said.
