Written by Joanne Benson, Head of Investments at Copia Capital
Given the uncertainty and fast-moving developments in global markets, navigating the current investment landscape is interesting to say the least. While President Trump’s decision to pause reciprocal tariffs for 90 days to allow more time for negotiations offered some short-term relief, the broader picture remains unsettled.
This widespread uncertainty notwithstanding, UK equities are beginning to regain investors’ attention. The UK’s newly announced broad trade agreement with the US is clearly welcome news, but after several years of economic and political turbulence resulting UK equities lagging behind global markets, attractive valuations, increased corporate activity, and tentative signs of stronger government support, had already encouraged some investors to take another look.
Valuations and shifting sentiment
One of the biggest reasons to revisit UK equities is valuation. The UK continues to trade at a significant discount to the US, particularly in the small and mid-cap segments. Years of post-Brexit uncertainty, pandemic-driven volatility, and a lack of investor appetite have pushed prices well below historical norms.
According to recent analysis from Citigroup, UK equities now offer better value than US stocks for the first time in many years. Citi downgraded US equities due to stretched valuations, while highlighting the UK as an undervalued alternative with long-term potential. For patient investors willing to look past short-term uncertainty, the UK market could offer a more attractive entry point.
UK companies have responded to low valuations with a rise in share buybacks, a sign that they may see their own stock as undervalued. These buybacks may indicate confidence in future performance and are supported by continued dividend payments, despite the challenging macroeconomic backdrop. That said, it remains to be seen whether this signals a sustained shift in market sentiment.
Takeover interest and policy signals
The rise in mergers and acquisitions has also drawn attention. With UK-listed companies looking relatively inexpensive, strategic buyers and private equity firms have stepped in. Last year, M&A activity involving UK companies accounted for nearly 70% of deal volume across Europe. While this is encouraging, it should be noted that some argue that such deals reflect opportunistic buying rather than long-term confidence in UK growth prospects.
Meanwhile, the Labour government has shown signs of wanting to encourage investment and foster economic growth. While policy details remain limited, proposals such as pension reform aimed at unlocking domestic capital, and the ‘Invest 2035’ strategy suggest a desire to revitalise UK industry and attract long-term capital.
The broader UK economy has shown surprising resilience. In 2024, it outperformed both the eurozone and the US in terms of GDP growth. The IMF recently revised the UK’s 2025 growth forecast down to 1.1%. However, it continues to predict that UK growth will be stronger than Germany, France and Italy. There is also growing speculation that the Bank of England may soon begin cutting interest rates – the IMF expects up to three this year. This could improve consumer confidence and stimulate growth across several sectors, including housing, retail, and manufacturing.
Risks to consider
Though promising, GDP growth remains modest by historical standards, and an external shock – like a downturn in key export markets – could damage future recovery.
And of course, global risks remain. One key concern is the continued uncertainty surrounding US tariffs. At the time of writing, the finer details of the UK/US trade deal are still to be confirmed. Even where the UK is not directly targeted, tariffs aimed at important trading partners like the EU could have an indirect impact by slowing growth elsewhere hitting UK exporters and disrupting supply chains.
An economic downturn in the eurozone or the US, particularly if driven by protectionist policies, could weaken demand for UK goods and increase financial market volatility.
The UK equity market presents some compelling factors – notably low valuations, selective corporate activity, and early signs of a more supportive policy stance, but there’s no denying that global risks remain. For long-term investors, willing to look beyond the immediate noise, the UK could offer selective opportunities amid the uncertainty.
