Steer clear of FTSE 100 even beyond the UK election, says SocGen

Steer clear of UK equities even beyond the election, despite their recent underperformance, said Societe Generale in a research note on Thursday.

The bank cited three key reasons why the market is unattractive, the first being fading growth momentum. SocGen pointed out that the UK economy delivered 2.6% gross domestic product growth last year, but with a 5.4% budget deficit and a 5.5% current account deficit.

“Stay away from UK domestic small caps,” it said, noting that Bloomberg economists’ consensus sees UK GDP growth stabilising this year and decelerating through the next two years.

The FTSE 100’s high exposure to Oil & Gas stocks is another of the factors SocGen highlighted. “After the recent rebound in the oil price, we expect some correction to come given poor fundamentals,” it said.

Currency swings are also a concern, with Societe Generale saying it expects the euro to weaken versus the pound.

If investors are keen on the UK, they should look at USD-sensitive stocks, such as defence company BAE Systems or media group WPP, both of which it rates at buy. BAE makes 36% of its sales in the US while WPP derives 34% of its revenues from North America, said the bank.