London Stock Revival Gets Fresh Boost From Inflows Ahead of Vote

(Bloomberg) -- A resurgence in London-listed stocks is getting an additional boost from fresh inflows and an increasingly bullish change in investor sentiment ahead of next month’s elections.

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The proportion of global fund managers who are net-underweight on UK equities has fallen to the lowest in a year at 12%, according to a survey from strategists at Bank of America Corp. Similarly, mid-cap equity funds have seen back-to-back net monthly inflows for the first time in three years, according to data from Morningstar Direct.

Investors’ renewed optimism for UK stocks has driven a rally in the past three months on the back of elevated commodity prices, large payouts and cheap valuations. The revival has signaled a significant turnaround in sentiment after London’s equities were mostly shunned by global investors since the Brexit vote in 2016.

Unlike the market turmoil that has greeted French President Emmanuel Macron’s surprise decision to call a legislative election, July 4’s UK vote is unlikely to be a source of volatility. Policies of the governing Conservative Party and opposition Labour are very similar, said Goldman Sachs Senior European Equity Strategist Sharon Bell.

“However, should more fiscal room open up and you see slightly higher fiscal spending under Labour, this may provide a boost to the FTSE 250, which is more domestic,” Bell said in an interview. Polling has consistently showed Labour far ahead of the Conservatives.

Still, while the recent performance has made investors buoyant, London continues to bleed listings to rival exchanges, mainly due to cheap valuations.

In the latest example, the Telegraph reported earlier this month that equipment rental company Ashtead Group Plc is in the early stages of considering a move to New York. It comes as the FTSE 100’s discount to the S&P 500 crept back toward a record high.

London stocks have also not been spared from Europe’s recent turmoil. Still, the FTSE 100 has regained all losses since Macron’s June 9 announcement, whereas the Stoxx 600 remains down almost 1% over the same period.

An improvement in the macro-economic outlook for the UK and Europe, coupled with increased optimism over the timing of interest rate cuts by the Bank of England, should lift London-listed equities further.

“The most important factor in revitalizing UK equity fund flows is improvement in the economic cycle and earnings,” Bell said.

France’s political upheaval has led Paris to lose its spot as Europe’s biggest equity market to London, less than two years after winning that title from the UK.

Stocks in France are now collectively worth about $3.18 trillion, narrowly losing out to the UK at $3.2 trillion, according to data compiled by Bloomberg.

--With assistance from Michael Msika.

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