Thinking of this old Martin Wolf reference (FT article from 2010) on the UK experiment with austerity.
You can see what Martin is getting at, most clearly, in the below graph. If it doesn’t leap out at you, let me assure you it is quite massive. That is a near decade long annually divergence of at least 2% of GDP. It is a trillion dollar economy. That’s a lot of spending that didn’t happen in the UK.
A decade on, there’s been little earnings growth, terrible returns, BREXIT, BoJo and…
…a market multiple on par with the emerging markets.
It has been, to put it mildly, somewhat grim.
That said, eventually, the price becomes attractive enough. We do have a bit of the UK in our multi-asset portfolios, via our allocations to Orbis (active international equities manager) and to the Eurozone (a passive vehicle giving us cheap European equity exposure).
It is difficult to imagine a worse set of economic and political developments, for either region, than what has unfolded over the past decade. Given that, it seems likely that the future will be better than the past, and in that sense the valuations are “backward looking” rather than their usual job of being forward looking. And that would make both markets potentially quite undervalued.
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