Country Ranking Model - June 2024
Source: MSCI
June Country Rankings
Country Spotlight: United Kingdom
It’s been a long time since UK stocks were in favor. Chronically low productivity growth, aging demographics and high public debt levels have dragged on the UK’s economy for the better part of a decade, with the 2016 Brexit referendum casting a long shadow of uncertainty that led many businesses to rethink or delay investment. In fact, real business investment in the UK still has not recovered to 2016 levels, a stark contrast to the double digit percentage increases in other G7 economies. Similarly, UK goods trade has underperformed other advanced economies by roughly 15% since the referendum. The country has also suffered from some of the highest post-pandemic inflation in developed markets, peaking at 11.1% in October of 2022. Economic malaise has gone hand in hand with political instability, with Liz Truss’ high profile, short-lived stint as prime minister coinciding with the pound falling to $1.03 in late September 2022 - an all-time low against the US dollar.
Indeed, in October of 2022 the UK was languishing in 30th place out of 33 countries in our country ranking model. Fortunately, there is strong evidence of a turnaround. Driven by improvements in fundamentals and momentum, the UK has risen over 10 places this month, and now ranks 1st overall, with 9th ranked fundamentals, 6th ranked momentum, 7th ranked risk and 8th ranked valuations.
Britain's economy grew 0.6% in the first quarter of 2024, the most in nearly three years, ending the shallow recession it entered in the second half of last year. Aditionally, the UK Manufacturing PMI rose to 51.3 and the Services PMI held firm at 52.9 in May, both above the 50 level that indicates expansion. Mirroring these positive developments, the long-term sales per share growth trend for UK businesses improved.
With CPI inflation dropping to 2.3% in April (thanks to a 12% drop in household energy bills) and core inflation declining to 3.9%, market participants appear to have confidence that disinflation will continue and estimate that the first interest rate cuts by the Bank of England will come in August of this year. With rate cuts on the horizon, money is flowing into UK assets. While the All Country World Index was down -3.3% in April, the MSCI UK Index was up 1.9%, and remains in a solid technical uptrend, returning 3.6% in the month of May.
Even the UK’s risk factor score has improved this month with a decrease in the credit default swap spread, and at the same time, UK valuations have held steady at a solid 8th ranking in our model. With an earnings yield of 8.2% and a price/book ratio of 1.8, the UK has some of the cheapest valuations around, especially compared to other developed markets.
With the economy showing signs of life, inflation on the decline, and investor sentiment turning positive, our multi-factor analysis suggests that British equities are entering a long-awaited revival.
Country Performance:
Data as of 5.31.2024
Source: MSCI
Country Ranking Model
As of 5.31.2024
Source: Accuvest Global Advisors
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