Goldman Sachs Strategists See Stars Aligning for U.K. Equities

(Bloomberg) -- After years of lackluster returns, things may be finally falling in place for the U.K.'s largest stocks in 2022, according to Goldman Sachs Group Inc. strategists. 

“This year, FTSE 100 should benefit from several supports,” the strategists led by Sharon Bell wrote in a note to clients. Higher rates will benefit value stocks over “longer-duration growth ones,” while a projected rise in prices for commodities such as oil and copper should also buoy household names in the British benchmark, according to the note. 

The FTSE 100 has been a consistent laggard since the Brexit referendum, with Goldman's team attributing only a small part of that underperformance to the U.K.'s separation from the European Union. A more crucial factor has been the absence of high-flying technology champions from the gauge, which is instead dominated by banks and commodities behemoths. 

A looming tightening of monetary policy across developed markets to tame surging inflation means that FTSE 100's idiosyncratic composition will be an advantage this year. Still, over the medium term, a dearth of high-growth companies will tend to hold the main U.K. benchmark back, according to Goldman. 

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“Pension funds and insurance companies have been sellers and households tend to keep their wealth in deposits or housing,” the strategists wrote. “The U.K. needs to attract overseas investment,” as “the lack of domestic bid for stocks is probably also a factor in holding down valuations.”

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