UK equities advanced in July, outperforming most major global and European peers.
The FTSE All Share index was up by almost 7%, buoyed by stronger-than-expected company earnings and rising M&A activity.
The positive sentiment was fuelled by fading European sovereign debt concerns, positive results for UK banks in European stress tests and UK GDP figures that showed growth of 1.1%.
UK firms progressed well in the first half of the year. The UK market is now trading at compelling valuation levels. This value opportunity is beginning to manifest itself through a rise in M&A activity. Furthermore, with revenues recovering, the dividend-paying ability of companies has been enhanced.
Other than BP, withdrawing its dividend, dividend growth has been strong across the market spectrum. The reinstatement of dividends that had previously been cut or passed entirely provides some evidence that UK corporates are well supported by strong balance sheets and diverse revenue streams.
The high proportion of global leaders in the UK equity market presents investors with opportunities to invest in financially productive firms with globally diversified revenue streams.
We remain concerned about the health of the UK consumer, particularly as government spending cuts begin to take effect and are cautious around this segment. The improving corporate environment and attractive relative valuations could still see the market make progress through the remainder of the year.
Lloyd Whitworth is director and manager of the Lazard UK Alpha fund
