Why UK stock market doom and gloom is overdone
Down almost 4% since the recent peak, the FTSE 100 has had another poor session, but one team of analysts remains optimistic. City writer Graeme Evans explains why.
18th November 2025 13:26
by Graeme Evans from interactive investor
The potential of overlooked UK assets such as Unilever (LSE:ULVR) and GSK (LSE:GSK) has been flagged by Morningstar after it examined 2026 opportunities beyond the Magnificent Seven.
It said improving fundamentals, compelling valuations and dividend yields that eclipse those of other G7 markets made the UK an attractive destination for investors.
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The FTSE 100 index is up by more than 15% this year but fund flows show that many global investors have missed out on gains that have been among the best in the world.
This aversion to UK assets hasn’t been helped by fiscal uncertainty and persistently negative headlines, a trend that has intensified heading into next week’s Budget.
However, the financial information group points out that the key attraction for UK stocks lies in their access to an attractively valued global earnings stream. This is available at a price/earnings multiple of about 14 times - approaching half that of the US market.
Roughly 80% of the revenues generated by companies in the Morningstar UK Index are outside the country, spread relatively evenly across the US, continental Europe, Asia-Pacific and the emerging markets.
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The top 10 stocks in the UK make up about 43% of total market cap but these are globally diversified leaders spanning energy, pharmaceuticals, industrials, financials, and consumer defensive sectors.
Morningstar gave the example of Unilever, which operates in more than 190 countries with a product portfolio that covers almost every aspect of daily life from deodorants and haircare to laundry care and cooking aids.
More than half its revenue is from emerging markets, meaning its long-term growth depends more on developing-world consumers rather than those in the UK. Its shares are lower year-to-date and trade on a forward multiple of about 17 times.
Morningstar said GSK was another firm with a deep footprint in emerging markets. Together with a strong line-up of patent-protected drugs and an innovative product road map, this left it well-placed to grow earnings.
It added: “Both companies trade well below Morningstar’s estimate of fair value, offering attractive long-term potential.”
Further down the market cap spectrum, the report said the persistent valuation discount has not gone unnoticed following strong bid interest from both corporate and private equity buyers.
It added that UK companies are also aggressively buying back shares, signalling strong confidence in their business outlooks.
Morningstar said: “We’d also highlight the UK housing sector as another pocket of value. Builders such as Persimmon (LSE:PSN), Barratt Redrow (LSE:BTRW), and Taylor Wimpey (LSE:TW.) are all trading at attractive levels, and any reduction in interest rates should act as a meaningful tailwind.”
The report suggests that the doom and gloom surrounding the UK is overdone, with easier monetary conditions likely to help return GDP to its trend pace of around 1.7% in the coming years.
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Elsewhere in its 2026 outlook, Morningstar said there was better value internationally and in small caps after noting that the top 10 stocks now accounted for about 35% of the overall US market compared with 18% a decade ago.
It added: “Periods of market concentration don’t always end in a sell-off, but history shows that narrow leadership can precede weaker returns.
“During the dot-com bubble between 1997 and 2000, the share of US market capitalisation held by the 10 largest stocks surged from 15% to 24%. However, when profit expectations failed to materialise, sentiment turned sharply, wiping out trillions in market value.”
Michael Field, chief equity strategist at Morningstar, said: “With US equities both concentrated and overvalued, better value lies across the horizon. Opportunities extend well beyond the US, with Brazil, China and Mexico standing out among emerging markets.
“We see value in European sectors like healthcare, technology and consumer defensives.”
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