UK stocks provided a bright spot in otherwise lacklustre global financial markets as traders sought income-paying equities to compensate for underperforming bond investments.
London’s blue-chip FTSE 100, which is stacked with banks and commodities producers that pay high dividends relative to their share prices, closed up 0.7 per cent after the UK market reopened on Wednesday following a Christmas holiday break.
The domestic-focused FTSE 250 that removes investment trusts from the index gained 1.4 per cent, while an index of UK real estate investment trusts also added 1.4 per cent.
Wall Street equities were mixed on Wednesday, with the blue-chip S&P 500 share index inching 0.1 per cent higher to a new record, while the technology-focused Nasdaq Composite dipped 0.1 per cent.
Europe’s Stoxx 600 equity gauge, which closed at its highest point since November 19 on Tuesday, declined 0.1 per cent.
The FTSE, whose total market capitalisation of about £2tn is smaller than that of Apple, has long been overlooked by international investors who have perceived the UK as politically risky because of Brexit-related uncertainties.
“Broadly speaking, the UK has underperformed global markets for a long time and it is now looking very attractive on valuation grounds,” said Kasper Elmgreen, head of equities at Amundi, Europe’s largest fund manager.
With global bond markets on course for their worst year since 1999 because of a global surge in inflation, investors were also searching for “lower risk, income-paying equities”, added Elmgreen.
The moves happened as traders assessed a mixed outlook for the potential of the Omicron coronavirus strain to disrupt global economies. The World Health Organization said in a weekly update late on Tuesday that the overall risk posed by the highly transmissible variant “remains very high”.
This came on the same day that the US Centers for Disease Control and Prevention reduced its previous estimate of the share of Covid-19 cases Omicron accounted for. The CDC has also halved its quarantine requirement from 10 days to five for infected people whose symptoms have passed or were resolving.
While Omicron has caused stock market volatility since its emergence in late November, investors have taken note of early data that suggests it may cause a lower share of hospitalisations among infected patients than previous strains.
The S&P 500 has gained more than 27 per cent in 2021 on the back of strong industry and labour market data and bets that the US Federal Reserve will not raise interest rates aggressively after it winds down its emergency monetary stimulus measures next year.
In government debt markets, the yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark debt security, rose 0.07 percentage points to 1.55 per cent.
The dollar index, which measures the greenback against other leading currencies, slipped 0.3 per cent lower. Meanwhile, Turkey’s lira weakened about 7 per cent against the US dollar to around TL12.6. At the start of last week, the volatile currency hit a record low of TL18.36 to the dollar before jumping sharply a day later when President Recep Tayyip Erdogan unveiled a new lira savings scheme.