January 28, 2020

Countdown to Brexit: U.K. Equities Valuation

by Tajinder Dhillon.

Looking at valuation levels, we are seeing U.K. equities trade at a significant discount compared to global and U.S. equities as shown in Exhibit 1. Using Datastream Global Equity Indices, the forward 12-month P/E ratio for U.K. equities is 13.4x. In comparison, U.S. and global equities are valued at 18.6x and 15.8x respectively. As a result, U.K. equities are trading at a 28.0% discount to U.S. equities and a 15.1% discount to global equities. To put this in perspective, the last time we saw discounts at this level was prior to the financial crisis in 2008.

While U.K. stocks are cheap on a valuation basis, they are also providing investors with the most attractive yields. The Datastream United Kingdom index provides a dividend yield of 4.0% in comparison to a 2.4% and 1.8% yield in the Global and U.S. index.

For reference, the Datastream Global Equity Index is comprised of 7,100 securities, providing a comprehensive view on valuation and yields. The U.S. and U.K. index comprises 1,000 and 550 securities respectively.

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