Global Investors Flee UK Stocks Amid Fears Over Reeves Budget

Global investors have been deserting British equities at an unprecedented pace, with outflows reaching their highest level in two decades. According to new figures released this week, money managers worldwide sold UK stocks during the initial weeks of September at the fastest rate witnessed since April 2004. The data, sourced from a Bank of America survey, revealed a significant “rotation” away from UK shares towards other areas of the financial markets.

By September, the average fund manager’s exposure to UK equities plummeted to 20 percent underweight, a stark decline from just 2 percent underweight the month before. This marks the lowest commitment to British stocks since March of the previous year. Such dramatic divestment comes amid growing anxiety regarding Rachel Reeves’s upcoming Budget, with many investors “terrified” by the prospect of further tax increases as the Chancellor seeks to stabilise the country’s precarious public finances.

Comments from industry insiders reflect widespread unease. Hugh Sergeant of River Global Investors remarked that fear of government policy and the looming Budget are driving capital outflows. The shadow business secretary, Andrew Griffith, warned that this loss of confidence is coinciding with an exodus of wealth creators, leaving the nation’s economy starved of both investment and skills.

The Bank of America survey covered some 165 chief investment officers and senior asset managers across the globe. Results indicate not only a retreat from British shares but also from utilities, energy, EU-related, and emerging market stocks. Instead, fund managers have increased holdings in sectors such as healthcare, telecoms, and consumer discretionary companies, favouring carmakers and luxury retailers.

Despite these outflows, the FTSE 100 has delivered a gain of over 13 percent so far this year, outperforming France’s CAC 40 and the S&P 500 in the United States. The German Dax, buoyed by defence spending, and the Nasdaq, fuelled by enthusiasm for artificial intelligence, have, however, notched higher returns. Commentators suggest that a combination of low domestic growth expectations and the FTSE 100’s defensive makeup have seen global capital opt for seemingly more dynamic US and European opportunities, especially those connected to AI.

Nevertheless, UK shares may hold promise for contrarian investors. Portfolio manager Job Curtis pointed out that, despite a lack of broad enthusiasm, share buybacks among FTSE 100 constituents have enhanced value for remaining shareholders. The Treasury has reaffirmed its commitment to establishing the UK as a premier investment destination, with the FTSE 100 continuing to hover near all-time highs.

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