Picture your Future. Save for it by earning 1.5% on a 1-year Term Deposit Account! Learn more.

Franklin Templeton Thoughts: UK 2021 Equity Prospects Brighten

After grappling with the impacts of a global pandemic and the continued Brexit overhang in 2020, the Franklin UK Equity Team outlines how the removal of these uncertainties in the United Kingdom could bring brighter investment prospects in the year ahead.

Even if investors could accurately predict events, 2020 has proven once again that predicting market movements based on this foresight is near impossible. However, this doesn’t mean that we should abandon our investing principles; we should remain vigilant to what we believe the market is factoring in and be nimble enough to adapt to a dynamic environment.

Below outlines some of the important events and milestones that we see on the horizon for a UK-based investor in 2021.

  • Synchronised global economic growth will likely be a feature for at least the next year as mobility restrictions are eased and demand improves. It is not often that global growth is predicted to reach mid-single digits for two consecutive years—as some forecasts show for 2021 and 2022 —so this should provide a supportive backdrop to risk assets. Furthermore, with the adoption of technology across vast swathes of the global economy in 2020 due to the pandemic, there is potential for productivity improvements to become embedded and enhance the long-run rate of growth. Once the uncertainty around Brexit is removed, we could see UK gross domestic product (GDP) grow by levels not seen since the 1970s. The economic out-turn domestically in 2021 is likely to be particularly pronounced on a relative basis due to statistical quirks in the data. The calculation methods employed in the United Kingdom appear to have exaggerated the 2020 economic decline and should correspondingly boost the 2021 rebound.
  • With the United Kingdom stealing a march on vaccine approvals and more set to be approved in the coming weeks, we are likely to see COVID-19-related mortality drop significantly in the coming weeks. The vaccination programme is prioritising the roughly 10 million people who are either over the age of 75 or work in health or social care. To put this in perspective, roughly 75% of the reported COVID-19 deaths in the United Kingdom have been in the over- 75 age category. The effect this fall in daily reported deaths will have on sentiment and behaviour, as well as government restrictions, remains difficult to predict, but will be a key element as to how the economic benefits play out. Despite dramatic increases in unemployment globally, the United Kingdom has had relative success in at least delaying job losses through job support schemes. As a result, layoffs across various cohorts over the age of 25 have been limited. Consequently, we have seen a dramatic increase in savings levels this year, with the savings ratio peaking at 29%. This puts the UK consumer in good stead to spend as the travel, hospitality and leisure sectors reopen. Housing data has confounded any expectations that we had at the beginning of the pandemic. Average house prices have reached record highs, with transactions reaching levels not seen since 2007. Clearly, the stamp duty relief that was introduced this year has been the driving force behind this, coupled with the dramatic fall in interest rates. With the stamp duty relief measures expiring in March, a short-term hiatus is anticipated. Yet, there is a huge cohort of ‘reluctant renters’ who would be financially better off on a monthly basis if they could get onto the housing ladder. This factor, combined with continued undersupply and a government impetus to help first-time buyers, means we remain positive on the UK housebuilding sector despite short-term uncertainty.
  • With a strong slate of potential listings, the run of form for initial public offerings (IPOs) is set to continue into 2021. From a year of corporations raising capital for defensive purposes, this signifies a change in risk appetite for businesses. Shareholder distributions will also be back on the agenda as suspended dividends in many areas are expected to return.

The economic impact of the Brexit deal uncertainty has been somewhat overwhelmed by the fallout from the COVID-19 pandemic. At time of this writing, a deal remains elusive, but the dividing issues should not be insurmountable. A resolution would lead us to a broadly constructive picture for sterling and, in turn, favour domestically orientated equities. Whatever the outcome, it is hoped that greater clarity will allow the conversation to move on after four years of wrangling and uncertainty.

Removing the ‘Brexit overhang’ could entice the return of the international investor to the UK equity market and serve to narrow the valuation discount that persists for UK shares versus their international equivalents.

 



Franklin Templeton Key risks & Disclaimers:

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com—Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton’s U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

What are the risks?

All investments involve risk, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For stocks paying dividends, dividends are not guaranteed, and can increase, decrease or be totally eliminated without notice. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments.



MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment and may be deducted from the invested amount therefore lowering the size of your investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

Join MeDirect today to access the tools you need to put your money to work on your own terms.

Latest news articles

Why we stay risk-on in the short term
All News

BlackRock Commentary: Why we stay risk-on in the short term

Last week’s central bank actions buoyed market sentiment, prompting BlackRock to maintain a pro-risk stance in their tactical outlook for the next six to twelve months as Q2 begins. Despite lingering concerns about persistent U.S. inflation and diminishing expectations of Federal Reserve rate cuts, they observe that stock markets are resilient.

Experience better Banking

The sooner you start managing your money, your way, using the best-in-class tools, the sooner you’ll see results. 


Sign up and open your account for free, within minutes.

MeDirect_Multi-Devices-cards

Login

We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.