\n\tBy Greg Peel<\/p>\n
\n\tThe UK is decoupling<\/span> from Europe, notes UBS. UK banks are easing credit and house prices are rising. The result is a UK market which now looks a lot like the US, albeit with slower growth.<\/p>\n \n\tBritain’s FTSE 100 has underperformed<\/span> the MSCI<\/span> World Index by 18% since 2007. If measured in US dollar terms, the FTSE is 30% below its all-time peak, notes UBS, and in real terms (adjusted for inflation) is back at mid-1990s<\/span> levels.<\/p>\n \n\tThe political situation in Britain is influential. The government is trying to kick-start the UK economy ahead of the 2015 election. Ex-Bank of Canada governor Mark Carney is about to take over the equivalent role at the Bank of England, replacing the long-serving Mervyn<\/span> King. Citi<\/span> has also turned positive, believing Carney will shift the BoE’s<\/span> focus from balance sheet management to Fed-style forward guidance, with base interest rates likely to stay “rock bottom” for years.<\/p>\n \n\tUK equities have been one of the many international victims of the recent sharp rise in US bond yields and growing concerns over emerging markets. Citi<\/span> is nevertheless bullish the UK on a gradual pick-up in US and global growth in the second half of 2013. UBS has upgraded UK equities to Overweight, noting that the UK market has the highest net yield of all major regions at 4%.<\/p>\n \n\tUBS prefers UK stocks with strong domestic exposure, being banks, homebuilders<\/span>, retailers, real estate and broadcasters. The broker notes funds flow data show the UK was the most popular region in May, and the broker can confirm, anecdotally, that interest from global investors is picking up.
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