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Opinion

Brexit keeps the UK out of bubble territory

The UK has been hit by Brexit as well as the pandemic, making for poor returns and a weaker recovery. UBS argues that this allows investors to buy while it is cheap.

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Unlimited quantative easing, negative real rates and the coming US fiscal stimulus have investors on heightened alert for any sign of bubbles starting to burst.

Signs of them inflating appear everywhere, from the rise of bitcoin and the furore over GameStop to the proliferation of special purpose acquisition companies (Spacs).

One group of investors can rest easy though. There are few signs that financial valuations in UK equities have become disconnected from economic fundamentals.

In 2020, plentiful and cheap central bank liquidity led to a quick reverse of the March equity market crash in most markets around the world.

The FTSE 100 is the big outlier. It stands today at 14% below its 2020 peak

The S&P 500 fell from 3,337 in late February 2020 to 2,305 one month later. Today it has more than recovered to at an all-time high of 3,911. That’s 17% higher than it stood a year ago.

The German DAX index is 3% above its previous high last February. The EuroStoxx50 hasn’t done quite so well, being still 4.6% below its high last February.

But the FTSE 100 is the big outlier. It stands today at 14% below its 2020 peak, despite all the efforts of the UK Treasury to support businesses and the Bank of England to overcome the worst effects of the pandemic.

It

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