Written by Millan Chauhan
Last week we saw US stocks climb to new record highs, with the S&P 500 closing up +0.7% in GBP terms, largely driven higher by technology stocks with the technology-heavy NASDAQ 100 index closing +3.1% higher. Since Trump’s election victory, sentiment towards US equities has increased significantly as Trump’s administration is expected to unleash several “pro-growth” reforms which includes corporate tax cuts. According to the fund flow data provider called EPFR, US Equity funds have seen investment inflows of $140bn since Trump’s victory which is the highest monthly net investment flow into US Equities since 2000. Conversely, investment flows into the emerging market region have been weaker with net withdrawals of $8bn from emerging market funds since Trump’s victory, with tariffs and trade wars reducing investors’ appetite towards investment into Chinese companies. Of the $8bn net withdrawals from emerging markets, $4bn of these net investment flows were withdrawn from China-focused funds.
Elsewhere, we saw investment flows into UK Equities turn positive in November for the first time in over three and a half years. This was following record investment outflows from UK Equities in October, ahead of the UK Budget as investors made redemptions in anticipation of expected capital gains tax hikes. Rachel Reeves announced that capital gains tax would rise from 10% to 18% at the lower rate and from 20% to 24% for higher earners. We remain overweight to UK Equities from a tactical asset allocation standpoint with continued takeover activity being a signal that UK equities are attractively priced. We have also seen a greater deal of buyback activity and last week, financial software provider, Sage announced plans for a £400m share buyback and also raised its dividend following stronger-than-expected operating profits, the company’s share price rose +19% following this announcement.
UK house prices rose by +1.3% month-over-month during November and UK lenders approved the highest number of mortgages since August 2022. However, fears remain around how the UK government are expected to increase the domestic housing supply, to meet their target of 1.5mn new homes over the next five years. Since the UK budget was announced, the six largest homebuilders (by market capitalisation) have seen their share prices fall by an average of 18%, with fears around resurgent cost-inflation, rising mortgage costs and increased expectation that the Bank of England Monetary Policy Committee will delay their next interest rate cut to 2025.
Within Continental Europe, markets were in positive territory despite recent political turmoil in France, with the MSCI Europe ex-UK index returning +2.3% last week, in GBP terms. Last week, Michel Barnier resigned as Prime Minister following a vote of no confidence in parliament. President Macron announced he would appoint a new Prime Minister in the coming days. Expectations that the European Central Bank will accelerate their rate-cutting cycle also increased.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th December 2024.
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