The partial easing of COVID-19 restrictions in the UK failed to help the FTSE 100 reclaim any ground on the S&P 500. Even so, despite the recent surge in the yields of 10-year government bonds, the FTSE 100 hit a fresh post-pandemic high last week. And the more domestic-orientated FTSE 250 index has risen by 7.9% since the start of the year, regaining its pre-pandemic level. All in all, the composition of UK equities mean they should especially benefit from the economic recovery, according to strategists at Capital Economics.
Rapid economic recovery to support UK equities
“Despite their slower rebound in Q1, the lifting of the COVID-19 restrictions, the composition of the FTSE 100 and favourable valuations means there is scope for UK equities to outperform their global rivals in the second half of the year.”
“Materials, energy, financial and consumer-facing sectors have continued to be among the best-performing sectors in the FTSE All-Share Index since the vaccine news on 9th November 2020. And the index will be buoyed by its larger weightings towards these sectors which we expect to fare best as the recovery gathers pace.”
“UK equities are still trading at cheaper valuations than in the US. Overall, we expect the FTSE 100 to rise from 6,915 currently to 7,500 by the end of 2021 and to 8,250 by the end of 2022.”