The UK’s FTSE 100 is handily outperforming Frankfurt’s Xetra Dax, rising 6.8 per cent over the past three months and rewarding stock pickers who have favoured London’s blue-chips as they look relatively cheap because of the pound’s weakness against the dollar.
Supermarkets J Sainsbury and Tesco are up 34 and 27 per cent, respectively, as British groceries increasingly consolidate. Evraz, the London-listed Russian steelmaker and miner, has gained 34 per cent in the past three months.
Crucially, London’s listed oil companies, including Royal Dutch Shell and BP, have been invigorated by climbing oil prices, with Brent crude just below $80 per barrel, up from $65 in March. The pound’s decline from near $1.44 in April to about $1.33 has also helped bolster the earnings power of commodity producers.
“There’s a lot of positive earnings momentum that comes straight down the pipe from strong oil prices,” said Edmund Shing, BNP Paribas’s global head of equity and derivative strategy.
The bank says that oil and gas or basic resources stocks account for more than a quarter of the FTSE 100 index, compared to a 1 per cent weighting in the Dax. But the Dax’s chemicals sector, representing some 13 per cent of the index, is threatened by rising oil costs, a key input.
The Dax, a total return index, has inched up 2.3 per cent in the past three months. While Linde has risen 26 per cent as the gas and engineering group nears an $80bn merge r with Praxair, stocks exposed to escalating trade tensions, crucially German carmakers, are holding back the list.
UK equities were still a consensus short among fund managers surveyed in the first week of June by Bank of America Merrill Lynch — but investors had increased their overall allocations to UK stocks compared to the previous month.
Eurozone equities, however, saw their biggest drop in allocation since July 2016, according to the closely watched survey.