JOHCM's Lowen: Which UK sectors are most overvalued?

'Big adjustment in markets'

In the UK, the Brexit breakthrough in December with agreement to move to the next phase of discussions was a major positive versus the implied outcome and the assumed (very negative) trajectory of the UK economy that is priced into domestic-related assets.

Meanwhile, economic data is not as negative as portrayed. Wage growth inched higher from 2.2% to 2.3% and we expect this to move towards 3% during 2018. As inflation falls from the current level (which will be the peak as the effect of the Brexit sterling devaluation drops out of the data) real wages will start to expand. UK inflation peaks as sterling hits post-Brexit high This corresponds to the narrative we hear from many of our UK holdings when we meet management teams. We expect sterling to continue its gentle appreciation. The biggest risk to the UK economy would be a Jere...