Current discussions around the UK market often converge on the rising risk pressures that investors are facing. Perhaps the first port of call here is the political and leadership issues within the UK itself and further afield:
- Ongoing Brexit uncertainty
- Changes in European political leadership
- A switch of leadership at the European Central Bank
- President Trump and his accompanying trade wars
In addition, bond yields for both corporates and governments remain very low, with cheap funding continuing to support elevated corporate leverage, albeit there are no signs of stress in this market as yet. Levels of unsecured consumer debt throughout the developed world in general remain high also.
Despite looking ok at the aggregate level, valuations within the UK market are polarised. There are bubbles emerging in particular areas of the market, where behavioural biases have driven valuations to record highs.
This all paints a rather uncertain, if not gloomy picture of the current UK market. However, regardless of whatever the UK economic backdrop has been over the past 20 years or more, investing in UK mid caps has proved to be rewarding. We expect this to continue owing to the underlying, enduring characteristics of these businesses.