UK equities could fare even better

Since the UK’s vote to leave the EU, the shares of medium- and large-sized companies have fared better in the UK than in many other advanced economies, owing to the slide in sterling. In common currency terms, though, they have generally fared worse in the UK than elsewhere, reflecting lingering concerns about Brexit. We doubt that the UK stock market will get much of a lift from an even weaker currency, which has already slumped to its lowest level against the dollar since the mid-1980s. Nonetheless, we still think that the performance of UK economy during the negotiations leading up to Brexit and thereafter will not be as bad as many fear, especially given the fall in sterling to date. The upshot is that we forecast that the FTSE 100 will end 2017 at 7,500, which is higher than its level now.