For Brits like myself living overseas, or indeed UK residents, the value of the Pound Sterling and UK Markets has been of much interest in the last few days.
The price-to-earnings ratio of the FTSE has fallen from 33, to about 13, in less than two years.
In simple English, that means that the price of the FTSE relative to the profitability of companies looks attractive.
Whilst US Markets have charged ahead, emerging markets, the UK and Japan all look relatively undervalued. Does that mean that the UK market will soar in the months and years ahead?
Maybe. However, Jack Bogle, the founder of Vanguard, was asked why he didn’t invest too much outside the US. His response was interesting.
Emerging markets are cheaper on a P/E basis as the markets perceive they are riskier. Japan has an aging population, whilst the UK is going through Brexit.
Ultimately, the market is pricing in something with Brexit. Whereas geopolitical events don’t always affect asset prices as much as people assume, Brexit could hurt the productivity and profitability of UK companies going forward.
A lot depends on the type of deal that is carved out, however risks remain. Trump getting elected doesn’t have as many implications compared to unraveling a trading relationship like the EU.
International investors are pricing in all the risks, and perceiving that the USD, US Markets and US Treasury Bonds are safe heavens.
All Brits can do is diversify their portfolios towards international, especially US Markets, and remain diligent if they are an expat with a UK pension.
