Citi Sees UK Stocks 'Cult' Emerging After Gilts Rout

  • In Business
  • 2022-10-03 14:35:19Z
  • By Bloomberg

(Bloomberg) -- The recent rout in UK bond markets may bring an end to a "gilt cult" among the country's pension funds, Citigroup Inc. strategists said.

Most Read from Bloomberg

  • Credit Suisse Turmoil Deepens With Record Stock, CDS Levels

  • Tesla Slumps as Deliveries Disappoint Due to Shipping Snarls

  • OPEC+ Set to Discuss 1 Million-Barrel Output Cut as Demand Slows

  • Ukraine Latest: Zelenskiy Says Lyman 'Fully Cleared' of Russians

  • Stocks Climb After Selloff as Yields Get Respite: Markets Wrap

Funds that have been willing to pay any price to hedge interest-rate and inflation risk received a "much-needed wake-up call" when gilts plunged in reaction to new Prime Minister Liz Truss's unfunded tax-cut policy, strategists including Robert Buckland wrote in a note Monday.

Such has been the clamor for gilts over the past 20 years that pension-fund weightings are the highest since the 1950s, according to the strategists. Demand has been fueled by the need to meet liabilities spanning decades into the future. Citi sees potential for pension funds to shift back toward UK stocks, which they say offer "decent value" and some protection against future inflation.

"Once the dust settles, maybe a new equity cult will emerge," they wrote.

The exporter-heavy UK FTSE 100 index has fallen about 4% since Chancellor Kwasi Kwarteng delivered his "mini-budget" on Sept. 23, while an index tracking firms that generate most of their sales in Britain slumped 10% through Friday's close.

The Citi strategists view that performance as "unsurprisingly resilient" in the face of the selloff in gilts. They reiterated their overweight view, particularly favoring defensive names with large overseas revenues, which they say tend to trade at a discount to global peers. These include drugmaker AstraZeneca Plc, consumer-goods producer Unilever Plc and telecoms provider Vodafone Group Plc.

Their view is in contrast to BlackRock Inc., whose global chief investment strategist Wei Li said on Bloomberg Television that the firm is underweight UK equities and gilts due to concern about fiscal credibility,

The FTSE 100 was up 0.2% as of 3:34 p.m. Monday as UK bonds yields eased following news that Kwarteng's plan to cut taxes for the highest earners has been scrapped. The announcement is "politically important, but not really fiscally important," according to Citi's Buckland.

(Updates Monday's FTSE move in final paragraph.)

Most Read from Bloomberg Businessweek

  • Millions in Cryptocurrency Vanished as Agents Watched Helplessly

  • The Unstoppable Dollar Is Wreaking Havoc Everywhere But America

  • As Home Prices Surge, Americans Are Moving to Cheaper Places

  • Jay Powell Needs Investors to Lose Money

  • The World Sees Brazil's Election as a Climate Flashpoint. Brazilians Have Other Concerns

©2022 Bloomberg L.P.


More Related News

Oil Jumps as China Loosens Curbs and OPEC+ Keeps Output Steady
Oil Jumps as China Loosens Curbs and OPEC+ Keeps Output Steady

(Bloomberg) -- Oil surged after OPEC+ kept output steady, sanctions on Russian crude kicked in, and China made further progress toward reopening.Most Read...

Investors Weigh US Jobs Strength, China Reopening: Markets Wrap
Investors Weigh US Jobs Strength, China Reopening: Markets Wrap

(Bloomberg) -- Stocks opened on a cautious note in Asia as investors weighed the impact of a hot US jobs report and an accelerated shift toward reopening of ...

Saudi Crown Prince to Invest in Credit Suisse Unit, WSJ Reports
Saudi Crown Prince to Invest in Credit Suisse Unit, WSJ Reports

(Bloomberg) -- Saudi Arabia's Crown Prince Mohammed bin Salman is preparing to invest in Credit Suisse Group AG's investment bank, the Wall Street Journal...

Private Debt Funds Tap Australia
Private Debt Funds Tap Australia's $2.3 Trillion Pension Savings

(Bloomberg) -- After winning over some of the biggest retirement plans in the US, private credit managers have found new fertile ground for their investment ...

Report of
Report of 'Secret' Saudi Oil Production Deal Probed by House GOP

(Bloomberg) -- House Republicans announced a probe into reports of a failed "secret deal to boost oil production" between Biden administration officials and ...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Business