On a recent episode of our podcast, A Dab Of Investment, I talked about a topic that has been on everyone’s lips – particularly ours – over the last two years: the UK stock Market. February 2020 was fairly abysmal for UK company values and it took two years for the UK market to recover from the aftershocks of this period. Having survived 2022, especially with regards to value, it’s critical to examine the Stock Market outlook for 2023 and what it means for UK investors.

At Applewood Independent, we’re optimistic that value will rear its head, leading to a corresponding high flying Performance for the stock market. Here’s why:

The UK FTSE 100

Recent market trends have taken quite a surprising turn. Previously, a significant number of people had been buying US-based portfolios and opting for protection under UK government gilts. While these two options led to a devastating 50 per cent loss, the UK FTSE 100 has held its ground. In fact, I believe that the FTSE 100 was one of the only large domestic markets that actually made money in 2022.

Currently, the UK FTSE 100 is almost at 7,800 points and is merely weeks or days – or even hours – away from reaching an all-time high. This is obviously positive territory! 

Overall, this growth spurt is alien, especially when we consider the fact that the FTSE 100 has barely grown since the year 2000 – a sharp contrast to the American market that has grown from 12,000 points to the mid 30,000s. 

However, with the current market outlook, history isn’t likely to repeat itself. America will not crush the UK and the growth of its company values again.

Funds performance and value

At Applewood Independent, we build our own fund portfolios and tailor them to each client’s circumstances. This unique service stems from our years of experience and highly-placed contacts within the industry. Recently, I had a meeting with one of said contacts – a fund manager – and garnered some fascinating insights.

One of the funds that has held my interest for a while now is the Man GLG Income Fund. Although the UK market has remained unloved for several years – particularly by overseas investors, this fund has managed to perform well despite the unfavourable circumstances. 

At the moment, the GLG Income fund is trading at seven to eight times earnings on average. If the market and the corresponding fund extends to ten times earnings, we could be looking at a 25% increase. But it gets even better. If the fund is worth more than current estimates, it could get to 50%. These outlooks are an apt reflection of how good things are going for the UK market.

Last year a significant number of companies began talking about distributing 10% dividends within the next 12 months. This means one thing: cheap valuations. A company that can afford to pay out a dividend equal to 10% of its worth within one year certainly lies on the cheap spectrum of the UK market.

The last time we witnessed this phenomenon – where 10% dividends were being promised – was at the back end of the credit crunch. In retrospect, the events of October 2022 – the mini budget and the sentiment-driven uncertainty – did feel like the end of the credit crunch recession in the late 2000s. It felt like a turning point, forecasting interesting events for this year.

Although the economy isn’t out of the woods yet – households, variable and interest-only mortgages are going to struggle, the silver lining is that the market doesn’t feel like it. At the moment, the UK market feels like it still has some headroom and from here onwards it will probably get better. 

The UK market vs. global performance

Having considered the UKs current performance, we don’t see striking green pastures anywhere else. Europe is currently in an unpredictable situation as a result of the massive uncertainty caused by rising energy prices and the ongoing war. However, there might be a few opportunities here.

While America still looks expensive, we expect that the dollar will begin to struggle towards the second half of the year as the US slows its increases in interest rates and treasury bills start to look less attractive. China will be the biggest beneficiary of the weakened dollar, but we don’t see much else happening within the market.

In comparison with the other big players in the world, the UK stock market looks promising. Its performance over the next couple of months will be largely driven by yield. If the share prices pick up more than the dividends that will be produced, we just might witness one of the best periods of performance in the last 20 years.

Final thoughts

Overall, the UK market seems to be in excellent form, with regards to value. Beyond the market being the best value for UK investors, there are also no complications of currency exchange or hedging by buying overseas shares. This, in combination with the UK market’s low-risk nature, makes for incredible growth prospects.

Looking ahead, this market will most likely produce an unrivalled massive yield. As I said at the beginning of this post, value WILL rear its head bringing performance along with it. However, it’s important to have an independent financial adviser guiding you as you navigate the market.

If you’d welcome our input, expertise and experience, please get in touch by emailing me at [email protected]. 

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.