This week in the markets: the UK shines

If the feel-good factor wasn’t already running high enough for the UK stock market, more reasons for cheer emerged over the weekend.

Tech firm Raspberry Pi and fast fashion giant Shein were said to be plotting listings on the London Stock Exchange.

Both floats may be imminent with Singapore-based Shein expected to achieve a valuation of £53bn, the Sunday Times said. That would see it challenging the top ten of the FTSE 100 by market size.

It goes against the narrative of late that too few firms are picking London to list. The Shein decision, though, may be more to do with growing tensions between China and the US rather than London’s attractions as a shining capital-raising hub. Shein was founded in China and has considerable operations there.

More positively, Cambridge-based Raspberry Pi – which helps children learn code – is just the sort of company that has been going elsewhere. There’s healthy funding for tech start-ups in the UK but they tend to go to the Nasdaq and elsewhere to float, believing they’ll get a better valuation. ‘London doesn’t get tech,’ is the narrative.

A float by Raspberry PI would therefore by very welcome, even if it does only reach a valuation of £500m. Before the London Stock Exchange rolls out the bunting, data from Bloomberg shows that of the $11.9bn raised from floating in Europe so far this year, just 2% was in London, well below the 31% average between 2012 and 2023.

FTSE 100: Rates and economic growth to the rescue

The FTSE 100 looked set to reach another new high at the close today, having risen to 8,437 points in early trading. It has notched up gains of more than 9% since the start of the year, with nearly 6% of it in the last month.

Despite that the Footsie remains on a price-to-earnings ratio of 14.9. On the same key measure of value, America’s S&P 500 is on a far more expensive ratio of 25.

The general mood for British investors was helped by better-than-expected GDP figures on Friday, which showed the economy grew by 0.6% in the first quarter. The number was modest, but it puts the UK closer to growth rates for US and Europe and is closer to longer term growth rates. Most significantly, the numbers marked an exit from a very brief recession at the end of 2023.

It wasn’t just the outlook for the economy bolstering confidence. The Bank of England had already helped by saying at the May rates announcement on Thursday that a first interest rate cut could still come in June… but also it may not. With policymakers covering all bases the market is still banking on a couple of cuts this year and for the UK to begin reducing before the US.

Doing so pulls investors away from cash and back toward the growth potential of equities, in theory. Our best-seller tables keep showing money market funds near the top of the chart for most of the year. Yields remain at around 5% but would fall if rates come down.

There are few corporate announcements to set pulses running this week. Greggs, whose shares have had a good start to the year, will offer a trading update on Tuesday. Further indication of consumer spending trends will come from electrical retailer Currys with full year results on the same day and from Burberry, an indicator of luxury spending, on Wednesday.

In the travel sector, analysts are expecting Tui to announce record first-quarter revenue of €4.3bn on Wednesday, generating a small underlying operating profit. It is the last update to London before it moves to the Frankfurt market. EasyJet will announce results on Thursday. Its shares have powered ahead 33% in the past six months despite geopolitical turbulence testing the resilience of the airline industry.

China vs India

At least three data points are worth a glance in Asia this week. Monday’s inflation data for India will indicate whether price pressure is easing back. The country’s consumer prices index has been around 5% so far this year and slowly easing lower.

Then we have Japan GDP on Thursday and retail sales in China on Friday.

These have been three very different markets for investors, with something of a reversal in the roles of China and India in 2024.

After substantial declines in 2022 and 2023, the Shanghai Composite Index has mounted a powerful rally since February. The market is one of the lowest valued of any major market, on a p/e ratio of 14.2, according to Bloomberg. That is a smidgen cheaper than the UK (see above).

Meanwhile the Indian stock market, which had been a four-year rip of strong returns, has stalled. Recent falls have taken the Sensex index almost back to where it started the year. Reflecting investor interest, the Jupiter India Fund entered our best-selling top 10 table in January for the first time but has since dropped out.

And finally

One of the biggest drivers of markets this week could be US inflation figures. The inflation outlook drives the interest rate outlook. And the fortunes of equities have been heavily influenced by the outlook for interest rates so far this year. Markets had expected plenty of cuts but now only expect the first reduction to come in September.

As a result, the US stock market has struggled in the past month. Watch out for the producer price index (PPI) on Tuesday followed by the consumer price index (CPI) on Wednesday.

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