{"id":4063,"date":"2025-12-16T06:57:02","date_gmt":"2025-12-16T06:57:02","guid":{"rendered":"https:\/\/microvibenews.com\/?p=4063"},"modified":"2025-12-16T06:57:02","modified_gmt":"2025-12-16T06:57:02","slug":"as-ftse-100-eyes-best-year-since-2009-smaller-uk-names-struggle","status":"publish","type":"post","link":"https:\/\/microvibenews.com\/?p=4063","title":{"rendered":"As FTSE 100 eyes best year since 2009, smaller UK names struggle"},"content":{"rendered":"

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After the strongest performance by the FTSE 100 in 16 years, the UK\u2019s more domestically focused shares look set to muddle along for yet another spell as the economic backdrop remains bleak.<\/p>\n

The UK\u2019s blue-chip gauge has defied expectations in 2025, rising\u00a019%<\/span>\u00a0and outperforming the S&P 500 and Euro Stoxx 50. But domestic peers have been left behind. The FTSE 250 is up just\u00a06.5%<\/span>\u00a0as high interest rates, a downbeat economy and a growing tax burden weigh on sentiment.<\/p>\n

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\u201cInvestors are definitely concerned about growth, taxes and politics in the UK,\u201d said JPMorgan Chase & Co. strategist Mislav Matejka. \u201cThere is no compelling angle, there\u2019s no clear growth acceleration.\u201d<\/p>\n

The Bank of England meets this week, and a rate cut is nearly priced in, with another one expected by June. Still, that may not be enough to support the market without a clearer improvement in growth. The UK risks its first quarterly contraction since Labour took office, after activity slipped in October ahead of Chancellor Rachel Reeves\u2019 tax-raising budget.<\/p>\n

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In contrast, euro-area mid-caps have been standout performers, gaining\u00a017%<\/span>\u00a0thanks to more dovish monetary policy and government spending commitments. Estimates for earnings growth next year aren\u2019t looking great either for the FTSE 250 at just 7.5%, compared with 27% for the Euro Stoxx Mid-Cap, according to data compiled by Bloomberg. The estimates are also higher for most large cap benchmarks, which are expected to generate close to or above double-digit earnings growth in 2026.<\/p>\n

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\u201cGiven the structural headwinds post Brexit and lack of pro-long-term growth policies from the government, we find it hard to turn constructive on the broader UK equity space, despite a compelling valuation case,\u201d said Barclays Plc strategist Emmanuel Cau, who is underweight UK stocks.<\/p>\n

After meeting with more than 100 investors and clients, he said concerns were raised about next spring\u2019s local elections \u2014 which could pose a setback for Labour \u2014 alongside persistent fiscal and growth worries.<\/p>\n

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For the FTSE 100, the strategists noted its defensive, value-tilted profile and attractive valuation, making it a useful diversifier. But it could lag next if global growth picks up as expected and investors pour money into markets with a stronger outlook. The benchmark often serves as a haven, given its heavy exposure to health care and staples, and tends to outperform when investors are more risk-averse.<\/p>\n

As a result, investors need to be selective. Some sectors should see early signs of recovery once interest rates begin to fall. The Bank of England may find it easier to justify easing policy as the economy shows clear signs of softness. JPMorgan\u2019s Matejka argued there is room for deeper cuts in 2026 than the two currently priced in by money markets, which could lift homebuilders, real estate and consumer-exposed sectors.<\/p>\n

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\u201cPessimism is laying the groundwork for possible improvement,\u201d said Martin Walker, co-head of UK and European equities at Invesco. \u201cLower rates could certainly help, encouraging reluctant households to start spending again.\u201d<\/p>\n

UK households are sitting on savings equivalent to 14% of GDP, which could be deployed as they get more confident, Walker said. He sees opportunities in utilities and internationally focused consumer-staples companies, many of which trade at compelling valuations relative to global peers. He also favors health care and domestic UK banks.<\/p>\n

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Broader valuations remain relatively low compared to global equities, but the UK has already re-rated this year, reducing some of its previous appeal. The FTSE 350 now trades around 13 times forward earnings, above the long-term average of roughly 12. Large caps have supported performance through strong dividends and buybacks, while earnings estimates have turned higher.<\/p>\n

UK stock investors were rewarded with 6.5% total shareholder yield, including dividends, buybacks and M&A, according to Russ Mould, investment director at AJ Bell. That outpaces inflation, gilts and cash, he said.<\/p>\n

\u201cThe UK has been a bit of a cash machine,\u201d he said, adding that earnings momentum and cash returns are the first \u201cstepping points\u201d for 2026. The UK is \u201cnot expensive by historic standards, but it\u2019s no longer cheap,\u201d Mould said.<\/p>\n

\u00a9 2025 Bloomberg<\/p>\n

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