UK Equities Defy Pessimism to Book Record Q1 Profits

In March of this year UK equities were the most unpopular asset class in the world among international institutional investors. The major sell-off created a self-fulfilling prophesy with the FTSE 100 becoming the poorest performing major equities index in the world, falling by more than 8%. It now transpires that, ironically, over the same period the collective profit being generated by the UK’s biggest 350 companies was reaching record levels. Revenues generated also grew 20.8% over Q1, falling agonisingly short of the all-time record set in 2012 but reaching a 3-year high of £1.33 trillion.

In early April, those investing online in UK PLC would have been wise to heed the words of Richard Buxton, the respected fund manager and chief executive of Old Mutual Global Investors. A survey by Bank of America Merrill Lynch had just been published which indicated the UK stock market was currently the most unpopular of any major market with big international investors. Buxton told the Financial Times that was the “bell ringer for me to fill my boots”.

Buxton has so far been proven right, with the FTSE 100 up around 9.4% since March 26^th. The FTSE 250 has gained 6.2% over the same period and the combined FTSE 350, which was just closing its Q1 of record profits when it touched its lowest point in around 15 months, is since up over 9%.

The data on Q1 profits and revenues was provided by UK online stock broker The Share Centre. Helen Miah, an investment analyst at the stock broker commented in a note:

“The global economy is on a tear right now, with synchronised expansion in most of world’s key regions.

“Strong economic expansion around the world, coupled with positive exchange rate effects, and more efficient cost-bases proved a powerful shot in the arm for multinationals.”

The biggest gains in profits and revenues were recorded by the UK’s multi-nationals, which derive much of their income internationally. Across the FTSE 100 the average year-on-year gain in Q1 profits was 176%. However, the more domestically-exposed FTSE 250 mid-caps also saw a near 40% average improvement in their bottom lines. Sales were up for 9 in 10 companies. Accountancy firm BDO’s ‘optimism index’, which compiles data from the Bank of England, HIS Markit and the Confederation of British Industry, is also above its long-term average. That’s despite their other index on business output falling behind its long term trend in April and means that UK companies expect their results to continue to improve.

Another index published by the Institute of Chartered Accountants today showed confidence among UK firms has reached its highest level in 2 years. A reading of +7 was recorded, having leapt from -1 over the previous quarter.

Monetary economists have recently warned that the amount of money Brits have in their bank accounts has seen growth rates fall to their lowest point in six years, which could indicate weak spending ahead, which would hurt the economy. However, news that UK companies are earning record profits and near-record revenues hopefully means they will invest and create more jobs in the UK. While the Brexit process may well still mean volatility ahead for the UK economy and UK equities, strong international growth may help smooth out the ride. At the very least, UK Plc’s Q1 success should mean anyone considering logging into their online stock brokers to sell off UK equities might want to pause for thought. Things don’t look bad at all.