Merrill sees 'attractive entry point' for UK blue chip stocks

With 70% revenue exposure outside Britain, the FTSE 100 "has very little to do" with the strength of the UK economy, so the blue chips should instead be viewed as a "barbell trade of energy plus quality".

Energy stocks are supported by improving global late-cycle indicators such as rising capacity utilisation and capex intentions, while 'quality' benefits from the 'slowdown' in leading indicators.

With sterling "likely to weaken" on slowing global leading indicators, lower forecasted inflation in the UK relative to the US over the coming year and interest rate divergence as the Fed hikes rates more than the Bank of England amid disappointing GDP growth and falling inflation, "this favours the FTSE 100 on a currency-hedged basis".

Current times offer an "attractive entry point", Merrill's analysts said, with a dividend yield premium and book-to-price ratio versus global peers near their highest levels in two decades and the investment bank's technical strategist showing the FTSE-100 at a 17-year bullish breakout.

"After have seen large cumulative outflows over the past two years (vs. inflows globally) and UK is a big consensus underweight in FMS. That may be turning -allocations rose in April from an all-time low reading in the March."

Running a stock screen showcases Merrill's most out-of-consensus long bets, in order of most upbeat: GVC, StanChart, National Grid, RSA, Ashtead, Smiths Group, Land Securities, British Land, Sage, Diageo and Royal Mail.