The Zhitong Finance App learned that the Morgan Stanley strategist said that the sentiment surrounding the UK economy has always been so bad that the country's stocks and credit are currently the cheapest assets in the world. If inflation starts to slow, this may create investment opportunities.
“Investors are currently very pessimistic about the UK; however, if inflation starts to subside, market sentiment may change,” said Morgan Stanley strategist led by Graham Secker.
Morgan Stanley said that although the valuation of British assets has been relatively attractive for some time, in the context of the past 20 years, British stocks and corporate bonds are the cheapest assets in the world.
The UK stock market lags behind the major developed market stock markets in 2023, as high inflation prompted the Bank of England to maintain a hawkish stance, heightening concerns about the recession. Traders have increased their bets that interest rates will rise to their highest level in 25 years, questioning the ability of British officials to curb inflation without dragging down the UK economy.
Morgan Stanley strategists expect that the performance of large British stocks will not surpass that of their global counterparts in the next few months because of weak profit trends and excellent performance of growth stocks. But they said that UK small and medium cap stocks look cheap and will be attractive if inflation starts to subside and boosts economic confidence. Although the risk is that the Bank of England will further tighten monetary policy based on a final interest rate of 5.5%, Morgan Stanley strategists currently anticipate no recession.
“However, the risks are rising, and it could be a challenging fall ahead,” they said.
Morgan Stanley's preferred stocks in the UK include BAE Systems, Ashtead Group, 3i Group, British Petroleum, Smith & Nephew, Haleon, Prudential, Rio Tinto, AstraZeneca, Indiana Plc, Segro Plc, and SSE Plc.
Meanwhile, Citibank strategists downgraded the UK stock market rating to neutral today on the grounds that a stronger pound harms exporters and that the market lacks exposure to growing industries. At the same time, they added that at a time when the UK domestic economy is likely to fall into recession next year, the trend of internationalization in the British stock market should provide a buffer for the market.