Glennie says this is an example of the market signalling that, "if equity buyers won’t close the discount relative to other markets, then someone else will".
Jackson says that while private equity acquirers paying premiums for the UK companies they are buying helps to improve sentiment, “for the most part, so far, the companies they are buying are those in need of a turnaround, and the companies being left on the market are of a higher quality.”
Hugh Sergeant, a veteran UK equity manager at River and Mercantile, says that while the home market’s moment in the sun in 2022 was driven by a tiny number of stocks in areas such as mining, and while the outlook for those stocks in the short term is uncertain, he believes that what has changed for investors is that we are returning to more normal market conditions.
This follows a decade in which growth stocks did well in a time of very low interest rates and inflation. But those were the abnormal conditions; a world where there is some inflation and where interest rates are above zero is more normal and that world is one in which many of the types of companies listed on the UK market do better.
Alan Dobbie, co-manager of the Rathbone Income fund, says: “UK equity income funds have now performed relatively well on a three-year view.
"And the catalyst could simply be that investors start to notice they are missing out on returns, especially as they realise that the world of very low rates is one we are not going back to.”
He adds that while the UK market is associated with cyclical sectors, a feature of many corporate results has been the resilience shown by many of the large consumer goods companies during this period of inflation.
Those companies, for example Unilever, are sometimes referred to as bond proxies because the durability of their earnings resembles those of a bond.
Those bearish on companies such as those point out that as bond yields rise, investors just buy the bonds rather than the equities that resemble bonds, but also that consumers will respond to the prevailing higher inflation by trading down to cheaper brands.
But Hugh Yarrow, fund manager at Evenlode, says that “results have been resilient so far, and now we are in a position where thee input costs of those companies are falling back.”
