UK large-cap stocks are about to complete their worst half-year since 1999 relative to European counterparts, with miners being mostly to blame.
(Bloomberg) — UK large-cap stocks are about to complete their worst half-year since 1999 relative to European counterparts, with miners being mostly to blame.
The benchmark FTSE 100 index has risen just 1% since the start of the year, trailing a 16% advance in the Euro Stoxx 50. In dollar terms, the UK benchmark is suffering its biggest underperformance since 2000, with a 5.6% gain versus the Stoxx 50’s 17% climb.
Three of the FTSE 100’s five biggest decliners by index points this year are miners — Glencore Plc, Anglo American Plc and Rio Tinto Plc. Steel producers in China — the world’s largest importers of iron ore — have been hit by a faltering economic recovery following Covid-19 lockdowns and a crisis in the property industry.
Slumps for British American Tobacco Plc and rival Imperial Brands Plc have also weighed on the UK benchmark. Bloomberg Intelligence analyst Duncan Fox cites a regulatory clampdown in the US, including the banning of menthol cigarettes in some states like California and concerns about potential further restrictions on vaping products.
The Stoxx 50, meanwhile, has been boosted by rallies in so-called quality companies with strong pricing power, such as luxury-goods leader LVMH SE and L’Oreal SA. Technology shares like ASML Holding NV and SAP SE have also rebounded from a slump in 2022.
Read: Europe’s Large Caps Are Outperforming the S&P 500: Taking Stock
Still some strategists are upbeat on the FTSE 100’s broader prospects. Analysts at Credit Suisse this week reiterated their overweight view on the index, noting multiple constituent stocks are “abnormally cheap.”
And Janet Mui, head of market analysis at RBC Brewin Dolphin, says a potentially worsening economic outlook in the second half of the year might benefit the FTSE 100.
“European equities could be more prone to underperformance given their cyclical nature,” she said in written comments, “If we do see a recession, investors would be looking at more defensive indices and the FTSE 100 is a relatively better bet, particularly from a valuation discount perspective.”
Why UK’s Once-Vibrant Stock Market Is In the Doldrums: QuickTake
–With assistance from Thyagaraju Adinarayan.
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