economy
UK stocks are beating Wall Street
The FTSE 100's outperformance of its U.S. counterparts is on shaky ground as the conflict in the Middle East drags on.
TL;DR
- London equities have extended their outperformance versus the U.S. into 2026, following a strong 2025 for the FTSE 100.
- The U.K. market offers a diverse range of opportunities, from energy and mining to software and data businesses.
- Defensive sectors like healthcare and consumer staples, along with miners and oils, provide ballast to the FTSE All-Share index.
- The U.K. market is seen as a hedge against geopolitical risk and supply chain concerns, benefiting from high oil and gold prices.
- Attractive cash returns, including dividends, buybacks, and takeover payouts, are luring investors to U.K. stocks.
- The U.K. market may offer better value due to being historically 'unloved' compared to the U.S.
- Challenges for the London market include shallower pools of local capital, company exits, few quoted tech firms, and high listing costs.
- The war in Iran has negatively impacted London's outperformance, with the U.S. being more insulated from energy shocks.
- U.K. inflation rose due to fuel price surges following the Iran war, highlighting its vulnerability as a net energy importer.
- A significant portion of FTSE 100 earnings (up to 75%) come from overseas, making the market highly international despite domestic issues.
- Compelling valuations exist in the U.K. market, with potential for renewed interest if the Iran conflict is short-lived.
- Global investors may be overlooking the value opportunities in U.K.-quoted companies.
- Sustained outperformance may require investors to find value in mid-cap and smaller companies, which is not yet consistently happening.