2025 – the turning point for UK capital markets?

2024 has been a challenging period for UK markets and equity fund managers, but the last quarter has begun to show a turnaround. Could 2025 be the year in which the value of UK capital markets comes to the fore? Nick Stockman, Head of UK Equity Sales at Deutsche Numis, makes the case for optimism.

UK equity funds endured further outflows in the last 12 months as the trend that began in 2021 continued; IPO numbers were disappointing, and the capital raised fell sharply. There is no denying that 2024 was a challenging year. But there are signs that change could be on the cards.

The inevitable uncertainty that surrounds a general election and the first Budget from a new government was a likely reason for the dampened appetite seen from both investors and corporates in recent months. But with those events now behind us, there is greater clarity about the direction of the country, and with it there are tentative signs of renewed vigour in the UK market.

In conversations with clients, we are hearing a marked increase in interest in the UK and our experience is supported by the data. Last month (November), the net inflow to UK equity funds rose for the first time since 2021^[1]. Caution, as ever, should be our watchword, but 2024 is ending on a positive note and we enter 2025 with greater optimism.

There is no denying that 2024 was a challenging year for UK equities. But there are signs that change could be on the cards. Nick Stockman, Head of UK Equity Sales at Deutsche Numis

The UK’s foundations of value

The fundamentals for a significant change in sentiment on the UK have been in place for some time. The value available in the UK market is considerable, and the disparity in valuations between UK equities and those in US and European markets are stark.

Whenever these valuation differences are discussed, some observers point to the fact that the US, for example, is dominated by tech stocks with a global profile and valuation multiples to match. However, a deeper dive into the data shows the valuation anomaly is not about the tech effect, but rather holds true between comparable sectors.

Private equity has noticed the value in the UK market, as have international corporate buyers. The second half of 2024 saw a flurry of deals, in which overseas groups grasped the value opportunity in UK-listed groups – the takeovers of DS Smith, Britvic and International Distribution Services (Royal Mail) being some of the most prominent examples. At this key inflection point, it is only natural that equity investors should start to look afresh at the value of UK companies.

There is still work for the UK financial community to do to consolidate the case for the UK as a world-leading investment destination and capital market venue. But there are now good grounds for asserting that 2025 will be the year in which the value in the UK market once again receives the recognition it deserves.