Amundi Fund Manager Holds to Unloved Stock Market Bet

(Bloomberg) -- U.K. equities are trading at a discount they may not deserve.

That's according to Nicholas Melhuish, head of global equities at Amundi, who says investors hung up on Brexit-related risks are missing a buying opportunity. He is overweight British stocks even as the market grapples with an increase in bearish bets and levels of investor pessimism last seen during the 2008 financial crisis.

“The U.K. looks extraordinarily cheap -- and attractive. It's become uninvestable for many people,” Melhuish said in an interview in London. “The reality is that the multinationals in the U.K. are just domiciled there. Even for the domestic stocks, we know what the bad news is.”

The benchmark FTSE 100 Index, whose members get about three-quarters of sales from abroad, is trading at 13.4 times forward earnings, near the lowest since 2014, according to Bloomberg data. It's declined more than the Euro Stoxx 50 Index since the start of the year, and equity strategists predict less upside for British equities than for euro-area peers going forward.

Melhuish, who declined to discuss specific stocks, said some companies in the U.K. oil and pharmaceutical sectors are trading at particularly attractive valuations. A few British healthcare firms have “interesting pipelines” which their discounts fail to reflect, he said. The sector makes up about 9 percent of the FTSE 100, with GlaxoSmithKline Plc, AstraZeneca Plc and Shire Plc its largest representatives.

Melhuish is also finding opportunities in more domestic stocks, which many investors have been avoiding because of mounting concern over the U.K. economy. The country is doing reasonably well in the circumstances, he said. Services activity grew more than expected in February and new business picked up for a second month, data this week showed.

“The probability of a hard Brexit is priced right now more than it should be,” Melhuish said. “If you are prepared to look six, nine, 12 months ahead, there are opportunities.”

To contact the reporter on this story: Aleksandra Gjorgievska in London at agjorgievska@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Paul Jarvis, John Viljoen

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