Global equity markets had another strong year of gains in 2024, following a trend that started in late 2023. Moderating inflation, stable labour markets and falling interest rates have all supported markets over the past 12 months. In November, the Chinese government announced stimulus measures for its economy. These factors have all contributed to a supportive backdrop for financial markets.
The UK has been no exception, though investments in UK equities have not seen the giddy gains of those in some areas of global equity markets, notably US mega-cap technology names. Some trepidation around the new government and the impact of its new tax and spending programme on growth appears to have held back confidence. Whilst sizable increases in minimum wage and public sector wage agreements likely support a brighter picture for the UK consumer, business confidence remains low impacting the growth outlook. UK labour markets remain resilient for now with low levels of unemployment while real wage growth is supportive of consumer demand albeit presents a challenge to corporate profit margins.
The IMF has raised its growth forecast for 2025 from 1.5% to 1.6%, reflecting a “continued pick-up in real incomes and consumption”.1 It also cited expected cuts in interest rates from the Bank of England over the course of the year.
Looking into 2025, the market’s attention is likely to focus on the incoming US administration under Donald Trump. The global economy has benefited from the significant growth and deflation ‘dividend’ it has received from globalisation over the past decades. The impact of a more protectionist US approach and the potential implementation of tariffs may challenge this dividend.
While this may unsettle global markets, we believe the political certainty now evident in the UK, will be helpful for UK assets and address the elevated risk premium that has persisted since the damaging Autumn budget of 2022. Whilst we do not position the portfolios for any election or geopolitical outcome, we are mindful of the potential volatility and the opportunities that may result, some of which have started to emerge.
The relatively depressed valuations for the UK stock market stand in contrast to high valuations seen elsewhere1. This valuation ‘anomaly’ has prompted many UK companies to undertake buybacks. The UK market also looks attractive from a yield point of view. The FTSE All Share currently has a dividend yield of 3.6%.2 This means the cash return of the UK market is attractive in absolute terms and comfortably higher than many other developed markets.
We anticipate further market volatility in 2025, but believe that in the course of time risk appetite will return and opportunities to invest for growth and income are evident in the UK stock market. It remains a fertile spot for long-term investing and We have identified several potential opportunities with new positions initiated in both UK domestic and mid cap companies. We continue to focus the portfolio on cash generative businesses that we believe offer durable, competitive advantages as we believe these companies are best placed to drive returns over the long-term.
For more information on how to access the opportunities presented by this trust, please visit: www.blackrock.com/uk/brig
