There’s plenty of talk about toppy UK stock markets and the potential end to a seven year bull run.

Market Cassandra’s point to gathering headwinds strength in domestic credit markets, the risks of material frictions to EU-UK trade and ongoing weakness in UK productivity.

But Panmure Gordon’s chief economist Simon French has issued a rallying cry in support of Britain’s company shares, saying ‘we are reaffirming our optimism regarding UK equity returns.'

INVESTORS CAN PROFIT

He believes that investors can profit from overly negative sentiment surrounding UK equities with corporate earnings set to be resilient to Brexit-related risks.

‘Global economic growth is experiencing its most coordinated upswing since the aftermath of the financial crisis,’ French points out.

‘Despite recent UK-specific political turbulence, UK equity returns and earnings growth have converged with those of other developed markets.’

The economist’s optimism is backstopped by four factors:

1. An ongoing recovery in UK corporate earnings;

2. An acceleration in global economic growth;

3. The persistence in the global hunt for yield;

4. A domestic economy facing long term structural, rather than short term cyclical challenges from leaving the European Union.

SUPPORTIVE CHARTS

The UK CAPE (cyclically adjusted price earnings ratio) is at a post-crisis high but at 16.0 is well below the 19.7 achieved ahead of the Financial Crisis.

The current discount on UK equities compared to their global peers is not universal across sectors.

Technology and Telecoms trade at a significant premium - by contrast Consumer Staples, Discretionary and Healthcare equities trade at a large discount.

A combination of a pick-up in global growth, a bounce back in global commodity prices and the 2016/17 weakness in Sterling has seen 2017 EBITDA return to £305bn.

EBITDA is forecast to grow by a further 15% during 2018.

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