Under-owned and cheap: why Barclays has become more bullish on UK stocks

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While afloat on Wednesday, the FTSE 100 UKX, -0.07% has performed impressive in 2021 so far, as investors have shifted to companies that could prosper as COVID-19 vaccines fuel the economic recovery. The UKX index, -0.07% has risen 4.5% during the year, compared to a 2.6% increase for the Stoxx Europe 600 SXXP, + 0.23% and 1.3% for the S&P 500 SPX, + 0.17%.

So-called value games, such as mining and energy stocks, are heavily represented in the UK index. Heavyweights BP BP, -0.16% BP, -0.66%, Royal Dutch Shell RDSA, -0.64% RDS.A, -1.13% and Anglo American AAL, -0.27% AAL, -0.27% have seen gains of two digits for the few trading days in 2021 so far. A “cheap reflation game, with a defensive cover”, is how Barclays strategists describe UK stocks right now, as they moved the asset class up to neutral or market weight, “after a terrible 2020”, in a note to customers on Wednesday.

“The defensive weights of the sector make the UK an unlikely performer, but it provides a hedge. Brexit will affect GDP for years to come and the UK COVID outcome is among the worst, but consequently could see a further pickup in activity if vaccines are successful, ”said a team led by Emmanuel Cau. “Global PM [portfolio managers] they have been away from exposure to the UK for the past four years. This was mainly due to the binary tail risk of a ‘dip’ outweighing the attractiveness of UK assets, but also because high tech / growth indices were the only place to be, ”the strategists said. “The UK is relatively cheap and poorly owned, but this has started to reverse, with domestic plays and GBP lately seeing an offer. ”

In terms of the sectors they like, strategists highlight commodities, financials, industrials and discretionary stocks, saying they avoid healthcare, commodities, telecommunications and real estate. Its overweight stocks include energy giant BP BP, -0.66% BP, -0.16%, miner Anglo American AAL, -0.27%, mining equipment group Weir WEIR, -0.39%. , subcontracting group Serco SRP, low-cost airline Wizz Air WIZZ, -0.10%, home builder Redrow RDW, -2.60%, catering group SSP SSPG, -1.59%, bakery chain Greggs GRG, + 0.55%, Avast AVST antivirus software group, + 0.56%, WPP WPP global advertising group, -1.43% WPP, -1.74%, 4imprint Group FOUR direct marketer, -2 , 65%, telecommunications BT BT.A, -0.14%, pharmaceutical company AstraZeneca AZN, + 1.73% AZN, + 0.99%, technology and medical products company ConvaTec CTEC, – 0.20%, grocer Tesco TSCO , + 1.12%, tobacco giant Imperial Brands IMB, + 1.38%, consumer goods group Unilever UL, + 0.52% ULVR, + 0.53%, electricity and gas manager National Grid NG, + 1.87% NGG, + 1.71% , Lloyds Banking Group LYG, -1.52% LLOY, -1.31%, Legal & General LGEN, + 0.18%, private equity and venture capital group 3i III, + 0.91% and investment and real estate development group Segro SGRO, +1.34%.