UK stocks with greater exposure to domestic issues, such as Brexit, are among the strongest gainers on the FTSE (^FTSE) on Wednesday as the EU signed the exit deal, firmly cementing the rules around Britain leaving the bloc.
“We have more uncertainty in the real estate sector than two weeks ago and it makes perfect sense for investor to buy householder stocks as they are still very cheap,” said Naeem Aslam, chief market analyst at AvaTrade.
Market sentiment around housebuilders has also been boosted on Wednesday as data from mortgage lender Nationwide UK (NBS.L) showed that house price growth reached a six-year high, even as the rest of the economy took a hit from the coronavirus pandemic.
The narrative around the UK banking sector has shifted on Wednesday.
“As for the banking sector, yes, there will be business interruption but that is likely to be a lot less now as compared to no deal Brexit situation,” said Aslam. “Hence we are seeing positive momentum.”
Banks and housebuilders have been among the most unstable stocks in the UK in 2020, directly impacted by the Brexit talks over the past few months as well as COVID-19 disruptions to their respective industries.
“The banks and house builders still look cheap on a book value basis, they are still a geared way of playing any UK economic upturn in 2021 and beyond and markets still seem willing to look through the latest wave of COVID-19 cases and hospitalisations in the view that better times lie ahead, thanks to vaccination programmes,” said Russ Mould, investment director at AJ Bell.
“So long as that sentiment holds firm, and the facts start to support that view, then cheap recovery plays – ‘value stocks’ for want of a better turn of phrase – could remain in vogue, but if the pandemic persists or gets worse or the economy double-dips then the experiences of 2020 would suggest that investors could quickly flee them again.”
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