UK Stocks: ‘Returning to Long Term Averages Could Offer Significant Returns’

UK equities may be poised for renewed investor interest as global capital begins to reassess exposure to US markets, according to a research note from Franklin Templeton’s Martin Currie unit.

The firm argued in its report on May 13 that recent US tariffs under President Donald Trump’s second term, combined with a weakening dollar, are making the United States a less attractive destination for foreign investment. 

Early signs are said to suggest net investment flows to the US are turning negative, raising the possibility that international capital may seek alternatives, like the UK.

“When people look seriously at the UK equity market, they’ll see it offers a tantalizing dividend yield, whilst still providing returns to investors via a combination of earnings growth and share buybacks,” analyst Ben Russon wrote. 

“However, the big opportunity is a re-rating of valuation multiples – even returning to long-term averages could offer significant returns to investors,” he added.

Valuations in the UK have long lagged global peers due to political uncertainty, but the investment firm suggests sentiment could shift as the UK was the first nation to sign a trade deal with the US. 

They add that improved relations with the European Union could further support confidence.

The note cautions that recent developments create uncertainty for US growth and investor sentiment, reinforcing the need for global portfolios to reconsider overexposure to America. 

“It’s likely to be a combination of factors, rather than one event, that will help change the UK’s fortunes,” stated Russon. “One thing that would certainly move the dial would be a reversal of investment flows with net flows to the UK turning positive.”