The value may have already gone from UK equities, according to Luca Paolini, chief strategist at Pictet Asset Management.
He said the composition of the UK market, being replete with “commodity and defensive stocks”, made it a good investment earlier this year, but this will not be the case in 2023.
Paolini said: "The problem is that valuations of UK equities are at about normal levels now. And next year we expect bond yields in the US to fall and in the UK and Europe to be flat. In those circumstances UK equities composition would not be expected to do well."
This is because commodity and defensive sectors would be expected to do less well relative to the long duration equities in areas such as technology, which are not well represented on the UK stock market.
Paolini believes the UK will see negative GDP growth through the entirety of 2023, whereas he currently does not expect either the Eurozone or the US to have a full year of negative GDP growth.
But he is keen to separate the UK economy from the UK stock market, as he doesn’t feel the performance of the first has much impact on the second.
Among the biggest risks Pictet Asset management views to the economy in 2023 is that the outlook for the US deteriorates as the present levels of consumer spending decline.
They take the view that consumer spending is holding up in the US because of a build-up of savings during the pandemic, but feels that this could dissipate in 2023 and cause the US economy to deteriorate.
david.thorpe@ft.com
