UK shares will continue to underperform the eurozone, JP Morgan said as it recommended investors stick with traditional defensive sectors.
JP Morgan has been very bullish in 2021 and that “positive growth-policy tradeoff” will stay in place for the medium term, it said. But the bank said it expected consolidation with the Euro Stoxx 50 index likely to stall around 4,000 for up to three months.
Traditional defensive stocks are the place to be at this stage and several defensive sectors such as staples, healthcare and telecoms have performed better recently, JP Morgan said. The bank stayed cautious on technology shares and long on banks and predicted a renewed value and cyclicals rally in the second half.
Many pundits favoured the UK at the start of 2021 but JP Morgan did not and reiterated this view despite moving from caution on the UK to ‘neutral’.
“We believe OW [overweight] Eurozone vs UK continues to make more sense, and note that again this year UK is underperforming Eurozone, by 180bp, lc,” JP Morgan analyst Mislav Matejka wrote in a note to clients. “UK is typically not the best long in the reflationary macro setup we envisage for the second half of the year. Among other things, UK is unlikely to outperform Eurozone against the backdrop of rising bond yields.”
Within the UK the bank opted for FTSE 250 shares over the FTSE 100 and domestic businesses over exporters, particularly housebuilders. Within the eurozone the periphery is interesting as the big beneficiary of the EU recovery fund, Mario Draghi’s plans for Italy and a “value tilt”, Matejka said.
