Good time to add UK equity exposure as growth set to reaccelerate – Thesis Asset Management

Now is a good time to be adding exposure to UK equity markets with economic growth likely to pick up again, according to Ryan Paterson, Research Analyst at Thesis Asset Management.
The UK economy grew just 0.1 per cent in the first quarter of this year, below expectations and down from the 0.4 per cent registered in the final quarter of 2017. However, given the extent of the pessimism, Paterson believes the sector has become a contrarian play.
“Negative sentiment towards the UK equity market appears to be prevailing, with most reports suggesting it’s a consensus “short” position. However, we think on the contrary that now is a good time to be adding exposure to UK equity markets,” he said.
“Severe weather around the start of March made the economy look a bit fragile in the first quarter, but we suspect growth will reaccelerate from here as confidence picks up and some pent-up business investment is approved.”
Paterson expects the Bank of England to continue with a gradual path of interest rate rises as a result, with one hike expected in 2018 as inflation continues to fall back toward the 2% target and the import price effect from last year’s sterling depreciation fades.
He also noted that while political risk may lead to further volatility in the UK, the recent deal struck with the European Union to secure existing trading rules during a transitional period means in the long term a recovery is likely.
“The UK conceded ground to the EU in Brexit negotiations,” Paterson added. “But a deal on a transitional arrangement to smooth the UK separation from the European Union has been struck, securing existing trading rules for an additional 21 months with businesses now able to operate ‘as normal’ until December 2020.
“Political risk may lead to further volatility in the short to medium term, but in the longer term a recovery is likely in unloved domestic stocks and mergers and acquisitions should increase as some highly valued champions become takeover targets due to sterling weakness.”