When Ronald Reagan said that the nine most dangerous words in the English language were “I’m from the government and I’m here to help,” he provoked a storm of protest from all sides of the political debate. Governments clearly can help drive competitiveness through improved skills policies, by investing in infrastructure and housing, as well as supporting innovation through R&D and incentivizing capital investment towards startups. Indeed Reagan embarked upon a radical new industrial strategy – the Small Business Innovation Research program – which between 1995 and 2018 generated an additional $184 billion in value added. But governments and investors

On 3 February, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of five to four to raise Bank Rate by 0.25 percentage points, with four members preferring a larger 0.50 percentage point increase. However, December’s headline inflation figure, at 5.4%, was around a percentage point higher than had been expected back in November, when the Bank last published its Monetary Policy Report. In a sense, this week’s move represents a loosening of monetary policy over the past three months, with the nominal interest rate rising by less than inflation, implying a fall in the real rate

Roughly 200 years ago David Ricardo hypothesised that trade between economies works most efficiently when each country specialises in the goods and services that they are relatively better at producing — a theory subsequently known as Comparative Advantage. These gains are likely to be strongest when countries trade with others that have very different specialities. Based upon these ideas, Fathom’s proprietary RiCArdo tool utilises detailed trade data to uncover an economy’s ‘revealed comparative advantage’ (i.e. which sectors an economy appears to be relatively better at). Unsurprisingly, the tool reveals that the UK’s comparative advantage lies in the financial, insurance and

The Financial Times reported that Lloyds Bank and NatWest plan to re-introduce 90% loan-to-value mortgages (LTV).  Due to COVID-19, banks removed 90% LTV products from the market for most of the year to reduce lending risk.  Higher LTV mortgage products are incredibly popular as it allows homeowners to save thousands on a deposit.  For example, a homeowner looking to purchase a property worth £500k can save £25k on a deposit by obtaining a 90% LTV mortgage instead of an 85% LTV mortgage. However, despite the removal 90% LTV products, the demand for mortgages skyrocketed in the second half of the

The Brexit transition period will end on December 31, 2020.  This deadline may have taken a backseat throughout most of the year due to COVID-19.  The duopoly of COVID-19 and fears of a no-deal Brexit has caused the FTSE 350 index to fall 14.3% year-to-date, making it one of the worst performers globally. However, the outlook for 2021 will certainly be somewhat improved irrespective of a Brexit deal as Britain has begun inoculating its population with a COVID-19 vaccine.  Britain was the first country to approve a COVID-19 vaccine and has ordered 40 million doses from Pfizer. In the United

Brexit worries combined with a low interest rate environment, deteriorating GDP growth, and a decline in business sentiment has created a challenging outlook for U.K. banks.  Banks have significantly underperformed the broader market when looking at Datastream Global Indices. The graph above highlights returns over the last 10 years, with banks achieving a 5.2% total return in comparison to 108.5% for the broader market. As a result of the low interest rate environment, net interest margin (NIM), the difference between interest charged on loans and paid on deposits, is a key profitability metric for banks has come under pressure. Further

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

Brexit uncertainty has impacted U.K. equities performance relative to global benchmarks.  The FTSE 350, an index of the 350 largest U.K. companies, has increased 20.4% since 2019, while its U.S. and European counterparts have risen 34.0% and 28.8% respectively. Global equities represented by the FTSE All World index gained 29.2%. Looking at the FTSE 350 in more detail, we observe domestically-focused U.K. companies outperforming their global multinational counterparts. The FTSE 100 consists of several international companies who derive a significant portion of revenue outside the U.K., whereas the FTSE 250 consists of companies with domestic revenue exposure. The FTSE 250

The United Kingdom plans on exiting the European Union by Jan. 31, 2020, which will be the third time Brexit has been delayed. Uncertainty around Brexit has profoundly impacted business and consumer decisions and sentiment. The U.K. economy has slowed with 2020 real GDP growth expectations declining from 1.6% to 1.1%.  Manufacturing activity has declined as businesses adjusted to uncertain Brexit outcomes, while trade tensions between U.S. and China only further complicated future investment decisions.  Business sentiment in the U.K. has been on a secular decline with the latest index reading reaching lows not seen since the original referendum. Sterling

Fathom’s Sterling Relative Risk Metric (StRRiM) — constructed from six measures of the relative risk of UK assets — has generally tracked Brexit-related uncertainty quite closely over the past few years. The indicator has fallen back from the levels seen towards the tail end of last year. StRRiM’s currency subcomponent — which typically maintains a close relationship to the aggregate indicator — declined substantially in the wake of last month’s general election, the result of which provided clarity on the whether and the when of the UK’s departure from the EU but not the how. Refresh the chart in your

European airlines have been facing their fair share of headwinds including Brexit, Boeing 737 Max delays and oil prices. Ryanair Holdings CEO Michael O’Leary has been consistent in his outlook that the airline industry is going to face further consolidation while unprofitable airlines will go into bankruptcy. “I think inexorably the market is moving towards consolidation. The bankruptcy of Thomas Cook was the latest … we clearly think the next failure will be that of Norwegian.” Looking at StarMine quantitative models and analytics, a challenging picture is painted for low-cost carrier Norwegian Air Shuttle: a secular decline in stock price

Since 1965, the FTSE All Share Index has increased during every tenure of government.  If we use a light-hearted assumption that prior stock market performance is an indicator of future performance, the markets would welcome a Conservative win in today’s U.K. election.  Using a logarithmic scale, the most notable increase came during 1979-1997, where the index increased 10 times in value during a Conservative government.  Since 2010, the index has also risen approximately 1.5x with Conservatives in power.  Labour was in charge during the tech bubble and ’08 financial crisis, which lead to the sideways performance during this period. Exhibit