Equities to make up lost ground

The post-election jump in UK equities could just be the start of a sustained rally. Concerns Brexit and higher taxes under a Labour government mean that UK equity indices have underperformed over the last few years. However, the removal of the “Labour” risk at least means there is plenty of room for UK equities to outperform, especially if there is a fiscal stimulus early next year. Admittedly, Boris Johnson’s refusal to extend the transition period beyond 31st December 2020 has already caused the price of domestically-focused equities to drop back a little and could weigh on prices next year. But we still expect UK equity prices to rise by about 17% by the end of 2021, compared to rises of less than 10% for most developed markets.