Brexit, Labour popularity & late-cycle valuations: Reasons to be cautious on UK equities

Cornelian's Millar gives his view

Following a 12-month period of strong returns, the UK equity market has largely moved sideways over the past six months, despite corporate earnings growth remaining robust and valuations - at this point 15x forecast earnings - not being as steep as they have been in the recent past.

Indeed, when comparing the valuation of UK equities to that of the US, they look relatively attractive. The UK market trades on a ~10% premium versus historical averages, compared to the US market which trades on a ~25% premium. There are, however, reasons to be cautious. Not least the uncertainty being caused by the protracted discussions to establish the terms of the UK's withdrawal from the European Union and the potential for long lasting economic damage if this is not managed properly.  Investors remain downbeat on UK despite overall confidence improving There is also the poss...