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Morgan Stanley, Barclays say UK stocks are looking cheap and can weather risk-off period

Published Wed, Jan 26 202211:02 PM EST

Elliot Smith @ElliotSmithCNBC

Morgan Stanley and Barclays have this week backed U.K. stocks to perform relatively strongly through the current period of monetary policy-induced global market uncertainty. Markets have swung wildly in recent sessions amid a broad pullback for risk assets since the turn of the year, particularly in high growth stocks likely to be negatively affected by rising interest rates. The S & P 500 closed Tuesday's trading day down 8.6% on the year, while the pan-European Stoxx 600 was down by around 4% and the MSCI Asia ex-Japan was down around 2.8% year-to-date on Wednesday. However, Britain's FTSE 100 had eked out gains of around 1.5% year-to-date by Wednesday afternoon, and strategists at both major banks see a compelling case for U.K. stocks. In a note Monday, Morgan Stanley Chief European Equity Strategist Graham Secker highlighted that rising real yields will benefit the FTSE 100, which he noted is "one of the cheapest global indices by some distance." Real yields have been adjusted to remove the effects of inflation. Morgan Stanley estimates that an upward move in U.S. real yields to the bank's bond strategists' target of -0.1% would indicate around a 12% outperformance of the MSCI U.K. large and mid-cap index compared to MSCI Europe ex-U.K. Meanwhile at 12.6x forward earnings — a measure