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The British discount
A number of things have happened that made me think about the idea of the British discount. A fund manager came out and said that UK equities were cheap compared to their counterparts listed on other stock markets and would likely remain so for a long time.
There are a number of reasons why these companies may trade at a British discount:
- The London Stock Exchanges doesn’t have a reputation for high growth businesses in the same way that the New York Stock Exchange or NASDAQ does. Instead it has a preponderance of mining companies and similar firms
- UK pension funds are discouraged from purchasing stocks
- The UK doesn’t foster the kind of businesses that growth investors would want to invest in
- British banks don’t particularly want to invest in British businesses beyond property portfolios
- Management demonstrate short-termism in their investment approach, as does the banking system
- There isn’t a culture of retail share ownership
- The UK economy has numerous structural challenges, some of them self inflicted
The British discount goes beyond the stock market, but instead the very nature of the UK itself.
Government debt is ballooning and will continue to do so, yet productivity is stubbornly low meaning the bonds will be ever harder to pay off. Finally as the Liz Truss debacle showed even leadership shows the British discount.
The state Britain has been in
The ideas and concepts the British discount aren’t even new – most of them came from ideas in Will Hutton’s The State We’re In originally published in 1995.
The fund manager can be confident in the British discount to be long-lasting as he knows that neither the Labour Party or their Conservative Party counterparts had managed to address existing structural economic issues. Instead they managed to create new ones.
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