MILAN (Reuters) – Credit Suisse strategists cut UK equities to benchmark from overweight on Monday, citing their more cautious view on commodities and expectation that sterling has already experienced most of its decline.
UK stocks have outperformed their euro zone peers by around 3 percent since end-April as investors were attracted by relatively cheap valuations and their strong commodity exposure.
But Credit Suisse said it believes the sterling price of oil has peaked and the boost provided by a weaker currency to internationally-exposed UK-listed firms might be over as the country’s economic growth outlook stabilizes and a soft Brexit is likely.
“The UK market is now overbought: The equity market underperforms 70 percent of the time this happens,” analysts at the Swiss bank said in a note on Monday.
Among the possible headwinds to the UK market, they also cited recent gains made by the opposition Labour party in polls, saying there is a 60 percent chance of a Labour government in 2022.
Nevertheless, Credit Suisse said valuations of British equities were still reasonably attractive.
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