A leading investment bank expects UK shares to outperform over the rest of the year, as it sees no reason to fear the Brexit bounce is coming to an end.
In a particularly bullish note, JP Morgan said today the FTSE 100 is one of the best buys around for investors as the UK is still "cheap" compared to other regions and will "benefit if bond yields stay low".
The investment house upgraded its outlook on bluechip UK-listed companies earlier this year and in an update to clients this afternoon said, although that decision "was clearly not based on the view that Brexit would happen … we believed that the UK would be the outperformer even in the case of Brexit and our bullish view on the region still holds."
The FTSE 100 has risen by nearly 1,000 points since it hit a post-referendum sub-6,000 low in the days after the vote. Since around three-quarters of its constituents' earnings come from overseas, JP Morgan noted the index "is a big beneficiary of a weaker pound." In fact, the bank said analysts had upgraded estimates of earnings-per-share on the index for the first time in four years off the back of sterling's 14 per cent slide over the summer.
Analysts even dismissed the idea that fresh political turmoil once the UK triggers Article 50 could upset the FTSE 100. "We are not suggesting that Brexit negotiations will be all smooth sailing," the bank said. "Still, if political uncertainty spikes again, our view remains that continental equities stand to lose more than the UK ones."
However, analysts were less optimistic on the fortunes of the smaller, more domestic-focused FTSE 250, saying it was an "unattractive" prospect given "it has [a] more more cyclical and domestic composition". The FTSE 100, by contrast, has one of the highest weightings of so-called "defensive stocks", those that do not typically move up and down with the wider economic cycle, which could protect investors against any sharper global or domestic downturn following the UK's vote to leave the EU.
The note came after directors at FTSE 350 firms sold more than £10m of shares in their own companies – cashing in on the Brexit bounce which has taken UK stocks to their highest level of the year.