A weird thing is happening to UK stocks …

They’re outperforming.
Image: Bloomberg

One of the stock market’s long-time underperformers is on a tear. While most major indexes are backtracking amid concern over the impact of monetary tightening, Britain’s FTSE 100 Index just hit a two-year peak.

The UK benchmark has gained more than 3% in 2022, boosted by its high exposure to cheaper, so-called value stocks that investors have been shifting toward in preference to more expensive growth sectors. The gauge rose 0.8% to 7 631 points in early trading Tuesday, its highest since January 24, 2020.

The FTSE 100’s year-to-date gains contrast with a 3.8% drop in the Euro Stoxx 50 index and a 5.9% decline for the S&P 500. In addition to its heavy makeup of cheaper equities, the UK index has also been lifted by oil rallying to a seven-year high, spurring gains for the likes of Shell Plc and BP Plc. The latter edged higher Tuesday after full-year earnings.

FTSE 100 outperforms, thanks to value trade, oil and banks
The benchmark also benefits from being rich in bank stocks such as Barclays Plc and Lloyds Banking Group Plc, which are benefiting from the likely boost to profit margins of Bank of England interest-rate hikes.

Still, for some, the FTSE 100’s rally versus peers can only go so far. “We think the UK’s recent outperformance has run its course,” HSBC strategists including Max Kettner wrote in a note to clients Monday.

Politics Aside, UK Blue Chips Have Much to Cheer: Taking Stock

© 2022 Bloomberg

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