Asia investors looking to Europe, should keep it simple and focus on the ‘spin-off’ that is the UK

Kay Van-Petersen
Global Macro Strategist

Summary:  There are a number of potential tailwinds for a long-term bullish stance on UK assets.

Our Q3 focus is on the structural turning point for Europe, both politically in the landscapes of Germany, and potentially France. We’re also looking from a social, policy and long-term investment perspective on sustainability, climate crisis and ESG initiatives. Whilst some of the nuances between the core and peripherals of the eurozone may be lost to investors in Asia, sometimes it pays to keep a simple framework to take out the noise from the complex moving parts.

Let’s think of the European Union (EU) as a large conglomerate, made up of many different companies that are represented by countries. The likes of Germany and Sweden are companies predominantly focused on exports and industrials, whereas Spain and Greece would be skewed towards the service side of tourism and hospitality. The different economic models of these companies will lead to different needs at different times. This is the challenge behind an EU that is seemingly one on a monetary policy front, yet hugely fragmented on a fiscal and structural policy front. 

In this analogy, the UK represents the spin-off of one of these companies from the EU conglomerate. Spin-offs give a company the ability to be laser focused on their own objectives and on fulfilling the needs of their stakeholders. 

Risks to the UK Spin-Off

The case for being structurally bullish about UK assets, such as sterling, equities, property and businesses, naturally comes with several running risks. 

  • Hammer and dance calibrations with potential new Covid strains that could continue to delay the economic model getting back to full run rate.

  • Something happening to BoJo, who despite critics and fans alike, seems to be the right leader at the right time for the UK. It’s unclear whether anyone else could be as popular in shepherding the Conservative Party.

  • The border situation in Northern Ireland.

  • Reversal in the hawkish tone from the BoE – we have had some flip-flopping from the BoE earlier this year, even on the other side of Brexit.

  • The EU playing hard ball in post-Brexit trade negotiations.

  • Levels of debt accumulated in the system as a response to the Covid pandemic.

  • A potential increase in competition to London, due to the drain in talent and capex that has gone to the EU.

  • A stronger GBP could make it challenging for UK exporters, which the FTSE-100 has in spades.

The Layer Cake of Potential Tailwinds for being bullish about UK Assets

With those risks in mind, there are a number of potential tailwinds for a long-term bullish stance on UK assets. 

  1. It’s contrarian. Not many people are talking about being long on UK assets – more than likely this is a result of 4-5 years of the “Brexit Tunnel of Turbulence”.

  2. This also makes the UK market likely to be one of the most underweighted on a global landscape, as it would have been hard for asset allocators to justify exposure with no way of knowing if it was going to be a soft, hard or amicable Brexit.  

  3. Let’s not argue over the quality of the divorce; at the end of the day we are on the other side of Brexit… Keep Calm and Carry On. Bullish markets thrive on less uncertainty rather than more, and being on the other side of Brexit greatly reduces the level of uncertainty that UK businesses, capital allocators and investors have had to contend with for years. 

  4. The UK FTSE-100 equity index, now at around 7,000, is one of the few major equity indices that never got back to their pre-Covid levels of 7,500, let alone broke out higher as we have seen on a number of main indices.
    1. A move to the 7500–8000 range before year-end would be around a +7% to +14% move from these 7,000 levels.

    2. The FTSE-100 was down 14% for 2020, unlike most equity indexes such as the S&P 500, Nikkei, China A50 and Nasdaq, that were up 16%, 16%, 23% and 44% respectively. 

  5. It’s arguably one of the cheaper equity markets globally, for the valuation-focused gals and guys.
    1. 1-yr forward PE on the FTSE-100 is 13x, compared to 20x for the S&P 500 or 24x for the Nasdaq-100, or even the default “cheap Japanese equities” with a PE of 18x.

    2. To put it differently, based on 1-yr forward PE, the Nasdaq-100, S&P500 and Nikkei trade at a premium of +84%, +54% and +39% to their UK sister. 

  6.  It’s worth noting that despite the epic amount of fiscal and monetary policy support that we saw in the UK, we’ve seen much clearer evidence of asset class inflation in places like the US, Canada and Australia, with the UK still lagging. 

  7. The FTSE-100 is predominantly an index skewed towards value rather than growth names. It has heavy exposure towards cyclicals like financials and commodities which should do well in an inflation and rates-rising regime. Think BP, Glencore, UK Banks.

  8. Sterling is still at multi-decade lows – just the 40-year quarterly average for GBPUSD is around 1.60, a +14% (unlevered) move from these 1.40 levels… 

  9. The UK has been one of the leading countries globally on the vaccine roll-out and set the bell curve on 8th December by being the first to approve a vaccine and quickly executing a roll-out strategy.

    This implies two key things:

    One: It showcases the flexibility, autonomy and speed that the UK can move when being outside of the EU’s sloth-like speed with its endless miles of red tape and more in-fighting than a UFC weigh-in (just think how France and Belgium have fared in the fight against Covid).

    Two: The UK will emerge out of the Covid-induced savings and lack of activity to some serious spending both by consumers and companies as the economy and the rest of the world opens up. 

  10. The BoE has moved from potentially entertaining negative rates around 2020 year-end’s Brexit deadline to discussions being around tapering and a more hawkish policy. This should be Sterling bullish.  

  11. Say what you want about BoJo (The UK’s Teflon Don), yet the Conservative party continues to gain ground and even Covid could not take Boris out. BoJo is the right leader, at the right time for the UK. 

  12. The UK has a scarcity factor that cannot be easily replicated anywhere else; there is only one London, one Oxford and one Cambridge, in it’s in the sweet time zone between Asia and the Americas. The UK will always be a destination for the global elite in the form of capital, talent, education and demand for assets.  

  13. If things deteriorate further on EU relations in the future, the country will make themselves as competitive as they need to be. If they need to be the offshore private banking centre of Europe, they will be the offshore private banking centre of Europe.

2H21 Could Also See China’s Lagging Tech Names Climb…

Whilst the US tech giants such as Facebook, Google and Microsoft are pretty close to their ATHs, their Chinese counterparts are anything but. 

Names such as Alibaba HK$ 208, Tencent HK$ 608, Baidu HK$ 178, Weibo HK$ 48 and JD.Com HK$ 280, are off anything from -20% to -33% from recent ATHs. This is despite earnings being relatively strong across the China tech space, lower valuations than their US counterparts, the scarcity value of listed tech champions in Asia, the underlying domestic economic currents being sound, and a world that is slowly emerging from Covid fever and fatigue.

Alibaba is down by over 30% from recent highs, lagging its US Tech Cousins like FB and GOOG 

Source: Saxo Group and Bloomberg

It’s worth noting that China’s monetary policy has been tighter than in the rest of the world and is likely to stay put in 2H21, with risks likely being towards some accommodation in the second half of the year. 

On the other hand, we are almost certainly going to see a move towards tighter US fiscal policy in Q3/Q4, as the Fed starts the taper dance, embarking on a pathway to eventually being able to raise rates.

So relatively speaking, even if the PBOC does nothing, there should be more accommodation on China’s monetary policy than the US into year end. This should be conducive for China equities, in particular the lagging tech names, bonds, and probably the domestic leisure and travel industry.

Explore Saxo’s products here

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (
- Full disclaimer (

Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.