We were all gutted when football did not come home in July and sadly UK markets did not catch the wave of optimism that surged through the country during the Euros

At the time of writing “Team GB” are going great guns in Tokyo, so let’s hope that will bring renewed optimism in a market that has slightly run out of momentum since the spring. The FTSE 100 rose 3.9% over the glorious two weeks of London 2012, so surely that is grounds for a repeat performance?

At the headline level, UK large cap indices were broadly flat in July, trailing US markets (again), which continue to break through new all-time highs. The UK index average hides some interesting moves at the individual company and sector level. Two points stand out to us:

  1. The private equity buying spree in UK markets continues, as international investors are gobbling-up cheap UK equities. According to Dealogic, in 2021 so far there have been 124 deals for UK companies (takeovers and minority stakes) for a combined value of over £41bn. For context, 2021 is already the biggest year for PE deals in the UK since 2007 and we are only just past the half-way marker. Morrison’s and Asda are the most high profile names here, but over recent weeks the likes of cyber security provider Avast (one of our holdings), aerospace engineer Meggitt, defence business Ultra Electronics and Smiths Medical were added to this ever-growing list. We have argued that UK equities are cheap for a long time now and businesses are being taken out all around us. With the likes of Unilever and Reckitt Benckiser both now trading on substantial discounts to their global peers, we would not be surprised to see someone take a shot at one of these big trophies.  
  2. Quality/Growth names are back in favour and the value rally has faded. Names such as Croda, Halma, Experian and RELX were all up double-digits in July on the back of strong trading updates and, in our opinion, clear evidence that the strong have only got stronger over the last two years. In contrast, so called “value” names such as HSBC, BP and ITV were the laggards. This rotation towards quality has favoured our investment style over the summer months.

One last point worth making is that recent events in Chinese equity markets has given us all a fresh reminder of how important the rule of law is when managing investment risk. The fact that the Chinese Government can wipe billions of dollars (or renminbi) off the value of giants such as Tencent, Alibaba and Baidu in the blink of an eye, has sent shockwaves through global markets and told us all just how little Chinese authorities care for the fortunes of overseas investors. We can complain all we want about UK and US markets, but we are immensely lucky to have such open and liquid markets available to us. We have always insisted that the rule of law prevails in markets where we have invested for our clients and this will never change.

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