Schroders Stays Bullish on FTSE 100 as Energy Exposure Offsets Stagflation Fears

Schroders remains positive on UK equities despite a more challenging macroeconomic backdrop, arguing that the market’s heavy weighting toward energy, materials and financials makes it an attractive diversifier as stagflationary risks mount globally.

In its May 2026 multi-asset investment outlook, the asset manager said it favors UK and Canadian equities over other developed markets due to their greater exposure to commodities and resources.

“We remain positive on UK equities given their exposure to energy, materials and financials, which provide diversification away from the narrow US technology-led rally,” Schroders said.

Elevated commodity prices, the firm added, continue to support earnings across resource-linked sectors, which is a dynamic that underpins the FTSE 100’s defensive appeal at a time when growth assets face pressure.

The constructive view on UK stocks comes despite Schroders lowering its global GDP growth forecast for 2026 from 2.9% to 2.5% and raising its inflation forecast from 2.4% to 3.3%, changes the firm attributed to disruption in the Middle East.

Schroders acknowledged the shift in the macro environment, noting that “we have moved in a more stagflationary direction although for now our expectation is that recession will be averted.”

The firm said the broader case for equities rests on earnings resilience. “Stagflationary risks justify lower multiples but, for now, earnings momentum is still supportive of equities,” Schroders wrote.

The asset manager continues to monitor bond yields closely, cautioning that interest rates are “at best, on hold” with the risk of further increases if Middle East tensions persist.