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A
broad UK index, the FTSE 350 is up about 6 percent this year
compared to the 10 percent rise for euro zone stocks.
"We think UK is becoming interesting in the regional allocation
again," JPMorgan's strategists, led by Mislav Matejka, said in a
note to clients, adding that signs that investors have turned
less risk-averse since early May also bodes well for
London-listed stocks.
"(The) UK is a defensive market with high dividend yield. It
should perform better in the backdrop of potential softening in
activity indicators, lower inflation prints and continued
range-bound bond yields," JPMorgan said.
The U.S. broker expects sterling's appreciation against the
dollar to halt.
British voters go to the polls next week. While the Conservative
Party, led by Prime Minister Theresa May, is expected to win
comfortably on June 8, her party's lead in opinion polls has
narrowed sharply in the last week, calling into question her
decision to call the unscheduled election seeking a strong
endorsement of her Brexit strategy.
A Labour win would be challenging for many domestic plays,
JPMorgan said, adding that any sterling weakness on the back of
this outcome would again boost exporters.
Elsewhere, the strategists turned more cautious on their view on
the outlook for equities. They cut their rating on autos to
"neutral" and added they now favor defensive sectors such as
utilities and telecoms which have significantly lagged in the
reflation trade underway since last summer.
Globally, JPMorgan continued to trim their allocation to
Japanese equities saying a strengthening yen was a drag on
corporate profits which were already showing signs of weakening
momentum.
(Reporting by Vikram Subhedar, Editing by Danilo Masoni)
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