What’s going on here?
British business activity is starting to look downright sunny, with growing optimism about the country’s economic and political outlook.
What does this mean?
The UK’s official purchasing managers’ index checks the overall climate for private sector companies. And the latest look shows them shining: confidence is up, they’re hiring, and manufacturers are fielding new orders left, right, and center. The index rose to 52.7 in July – comfortably above the critical 50 level that separates the economic good times from the bad. That’s thanks to a little pickup in the services sector and a hefty improvement in manufacturing. And there were handshakes aplenty: new business increased and new jobs were started at their healthiest pace in over a year.
Why should I care?
For markets: Cheap as chips.
UK stocks have been stuck in a bit of a rut since 2016’s Brexit vote. But near-target inflation and some new political leadership have investors giving the country’s shares a second look. Big investing houses have been crowding into London’s mid-sized stocks like they’re the Tardis. But, after years of underperforming, they’re still pretty cheap – and so are Britain’s bigger fish investments. Of course, that could soon begin to change: attractive valuations and an economic recovery make for a pretty tasty recipe.
Source: Google Finance
The bigger picture: Lessons from China.
With inflation seemingly back under control and interest rates expected to be slashed across most major economies this year, that should paint a brighter picture for global growth and stocks. But with geopolitical tensions, election uncertainties, and a still-struggling Chinese economy, it won’t all be sunshine and shortbread. In fact, if there’s one lesson to take from China now, it’s that low valuations aren’t everything. The country’s stocks are still trading super-cheap compared to other major markets – but with the outlook still so murky, even bargain hunters are keeping their distance.
