UK stocks provided a rare glimmer of hope in otherwise lackluster global markets, with traders looking for income-generating stocks to offset underperforming bond investments.
The UK’s premier FTSE 100, which groups banks and commodity producers who pay high dividends against their stock prices, added 0.7% on Wednesday as the London market reopened after a vacation break.
The domestically-focused FTSE 250 (excluding investment trusts) gained 1.2 percent while a UK real estate investment trust index also rose 1.2 percent.
Wall Street stocks were subdued, with the blue-chip S&P 500 index trading flat. It had closed 0.1% lower on Tuesday after hitting an all-time high earlier in the week in thin holiday trading. The technology-focused Nasdaq Composite fell 0.4%.
The European stock index Stoxx 600, which closed at its highest level since November 19 on Tuesday, edged down 0.2%.
The FTSE, which has a total market capitalization of around Â£ 2 billion lower than Apple’s, has long been overlooked by international investors who viewed the UK as politically risky due to Brexit uncertainties.
âOverall, the UK has long underperformed global markets and now looks very attractive in terms of valuation,â said Kasper Elmgreen, head of equities at Amundi, the largest fund manager in Europe.
As global bond markets are on their way to their worst year since 1999 due to a global spike in inflation, investors were also looking for “low-risk, rewarding stocks,” Elmgreen added.
The moves came as traders assessed a mixed outlook on the potential of the Omicron coronavirus strain to disrupt global economies. The World Health Organization said in a weekly update Tuesday that the overall risk posed by the highly transmissible variant “remains very high.”
This came on the same day that the United States Centers for Disease Control and Prevention lowered its previous estimate of the share of Covid-19 cases represented by Omicron. The CDC also cut its quarantine requirement from 10 days to five days in half for those infected whose symptoms have passed or were disappearing.
But while Omicron has caused stock market volatility since its emergence in late November, investors have taken note of early data suggesting it could lead to a lower share of hospitalizations among infected patients than previous strains.
The S&P 500 has gained over 27% in 2021 thanks to strong industry and labor market data and is betting the US Federal Reserve will not aggressively raise interest rates after ending its emergency monetary stimulus next year.
In government debt markets, the yield on the 10-year US Treasury bill, which moves inversely to the price of the benchmark debt security, increased 0.05 percentage points to 1.53%.
The dollar index, which measures the greenback against other major currencies, fell 0.4%. Meanwhile, the Turkish Lira weakened about 6 percent against the US dollar to 12.5 TL. Early last week, the volatile currency hit a record low of 18.36 TL to the dollar before jumping sharply a day later when President Recep Tayyip Erdogan unveiled a new lira savings program.