The UK reclaiming its place as Europe’s largest equity market was rather overshadowed this week by news that a certain US company (no prizes for guessing which) has become the world’s most valuable. That’s par for the course given the pull that New York, and Silicon Valley, exert on investors in the modern age. But it shouldn’t cloud our judgement entirely.
Most of the Magnificent Seven may be soaring, but it remains an under-recognised fact that much of the US market has behaved as you’d expect at a time of higher interest rates. We noted last year that the more defensive FTSE 100 had outperformed the S&P 500 since the western world's rate-hiking cycle began in December 2021. That remains the case as of this summer – irrespective of whether you convert US returns to sterling or not.
Indeed, of the major investment regions (encompassing individual developed markets, and a representative collective benchmark for emerging markets), only Japan can boast a better stock market than the UK in local currency terms over this period. And given the weakness in the yen during this time, only domestic Japanese investors will have been able to enjoy this comparative advantage.