In the last five years, the British stock market has been characterized by trading at a discount compared to Wall Street. And a PER (times that the benefit is reflected in the share price) of around ten times has led the index that includes the behavior of listed companies in the United Kingdom – the MSCI UK – to deepen this discount.
Thus, if compared with the same index for the US market, the discount is 45% which aims to make the British twice as cheap on the floor. The London stock market is even cheaper than the European one (it offers a price/earnings ratio 20% lower than current prices).
“Years of relatively low prices have led to a contraction in the UK stock market, which accelerated to a record pace in 2022 with the stock market cut of the 6% in the case of the Ftse 100″, according to Citi analyst Beata M. Manthey. For the firm, the biggest discounts at this point would be seen in companies focused on the business of raw materials, basic consumption and energy; and only the companies focused on telecommunications would trade with a higher average PER than the one offered by the American ones. This motivates Citi to recommend taking positions in British companies that earn most of their revenues outside their borders.
As an example, less than a third of the main British index, the Ftse 100, increased its PER in the last twelve monthswhich means that most of them become cheaper despite the fact that the British stock market rises in the year and with the profit pressure that is expected for this 2023, according to the market.
Glencore, AstraZeneca or BP are among the values that have fallen the most in the last two years. And since they are companies with a large market capitalization, and therefore with weight in the main British indices, they drag down their entire stock market. The quick recovery from the pandemic It triggered the share price of pharmaceuticals such as AstraZeneca, which is trading at a PER below 19 times, which is close to its historical average after trading at unusually high ratios. Shell, the largest company in the British index, trades with the lowest PER in its history of less than six times.