Global investors are reducing their investments in British stocks at an unprecedented rate. According to a survey conducted by Bank of America, fund managers cut their exposure to UK securities in November at the fastest pace in over three years. This reduction represents the largest decline since October 2022. The bank's strategists, led by Michael Hartnett, indicate that investors are using British stocks as a cautionary tool amid rising economic risks.
The capital outflow is attributed to worsening expectations for the UK economy, concerns over potential tax increases, and austerity measures that the new government may announce on November 26. Additionally, high interest rates are creating pressure, as the Bank of England maintains rates significantly above those in the eurozone and shows no inclination to lower them. This combination of factors is creating an unfavorable climate for investors seeking profitable opportunities.
Paradoxically, despite the substantial capital outflow, the FTSE 100 index has risen by 17% since the beginning of the year, outperforming both the Euro Stoxx 50 and even the S&P 500. This resilience can be attributed to the index composition. Approximately 75% of the revenue generated by the companies within it comes from abroad, insulating them from the weak domestic economy. In contrast, the locally focused FTSE 250 index showed only a 4% increase, reflecting the true state of the British economy.
The proportion of investors who consider British stocks overvalued has risen to 29%, up from 19% a month ago, making the UK market the least popular in global surveys. Only 3% of respondents believe that the FTSE 100 will deliver better returns in 2026. However, Bank of America strategists highlight a counter-trend strategy: betting on the growth of the FTSE 100 while simultaneously playing against the decline of emerging markets.
