UK equities remain among the cheapest developed markets, but multi-asset investors face a familiar dilemma: rotate into undervalued domestic stocks or stick with the higher-growth US market.
New analysis from Fidelity International found the UK consistently ranks among the least expensive major markets across a range of valuation measures, while the US remains the most expensive following strong gains in large technology stocks.
One of the clearest examples is the cyclically adjusted price-to-earnings ratio, which compares current prices against inflation-adjusted earnings over the previous decade.
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The measure highlights a widening gap between UK and US valuations.
Fidelity said investor sentiment may already be shifting. Its research found that 47% of UK retail investors expect to increase exposure to domestic equities over the next 12 months, compared with 31% for emerging markets and 29% for the US.
Fidelity International pensions and investment specialist Jemma Slingo said: “Valuation gaps between markets are now quite stark. The US continues to look expensive, largely because of the strength of its technology sector, while the UK stands out as much cheaper.
“ These differences reflect contrasting expectations for growth. Ultimately, when assessing any valuation metric, investors are making a call about growth.”
The findings come as investors increasingly weigh the appeal of cheaper markets against the earnings momentum and technological leadership that continue to support US equities.
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