(Bloomberg) -- The defensive attraction of UK-listed stocks is unlikely to endure, as falling interest rates spur investment in riskier parts of the equity market, strategists at Barclays Plc said.
The FTSE 100 has recently outperformed European peers amid global economic concerns, aided by companies with non-cyclical earnings like Unilever Plc and British American Tobacco Plc. That’s unlikely to last “if we do see a soft landing into 2025 on rate cuts and falling uncertainty post the US election,” the team led by Emmanuel Cau wrote in a note.
On a three-month basis, the FTSE 100 is up by about 1.7% versus the Euro Stoxx 50’s 0.8% decline, with weak earnings reports from LVMH and ASML Holding NV halting the European gauge’s recovery.
The FTSE 100’s high commodities exposure remains “deeply unloved,” Cau added, despite recent gains for the likes of Anglo American Plc and Glencore Plc on the back of China‘s latest measures to reinvigorate its economy.
UK equities got a boost on Wednesday as data showed inflation in Britain slipped below the Bank of England’s 2% target, fueling bets of a rate cut next month. A falling pound benefited FTSE 100 exporters, while rates-sensitive domestic shares like real estate and utilities outperformed.
Barclays said it likes both UK sectors as well as retail and diversified financials, in the note published before the inflation data release.
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