The UK equity market lagged the US one in 2021. Is it time to buy UK equities in 2022? Here are three reasons to consider that make UK equities an attractive investment.
Shortly after Brexit negotiations ended in December 2019, the COVID-19 pandemic started. The shock shifted the attention from Brexit and its impact on the UK economy, as many predicted a gloomy future ahead for the economy and the stock market.
Fast forward two years and things are just the opposite. Both the UK economy and the stock market recovered after the initial pandemic shock, and UK equities are attractive at current levels, despite rallying this year.
Here are three reasons to buy UK equities in 2022: UK equities offer exposure to the global economy, pay higher dividends than other developed markets, and the FTSE 100 is in a bullish trend.
UK equities offer global exposure
By investing in UK equities, investors gain exposure to the global economy. About 75% of the FTSE All-Share Index are multinational companies, earning three quarters of their revenues from outside the UK.
It means that by investing in the UK equity market, one gets exposure to the world economy and less to the local one. In other words, an investor obtains diversification benefits by investing in one market and getting global exposure.
UK dividends have outperformed
Historically, UK equities have paid higher dividends than their peers in other developed markets. They have outperformed over the 10-year median, and the average UK dividend rate is 3.7%.
FTSE 100 is in a bullish trend
Last but not least, FTSE 100 is in a bullish market, as reflected by the series of higher highs and higher lows it made since the drop in 2020. This year the bullish trend continued as flows kept pouring into the equity market. With only a few days ahead of the end of the year, the FTSE 100 trades close to its highs and with a bullish tone, despite the surprise rate hike delivered by the Bank of England.
UK equities have not rallied this year as much as the US ones. Is it time to close the gap?