Are London’s discounts becoming too big to ignore?
26 September 2025
UK equities have long flashed value signals. Their performance this year suggests that investors are finally taking notice.
After years of being overlooked, London is re-emerging as one of the hottest developed equity markets at a time when valuations elsewhere are looking increasingly stretched.
In the US, much of the optimism in the stock market rests on a narrow set of giga-cap tech firms. AI operations are generating roughly US$50 billion a year, but that’s a drop in the bucket against the US$2.9 trillion expected to be sunk into data centers by 2028 — a mismatch that highlights the risks of chasing growth at any price.[1]
The US labor market, a reliable early warning sign for recessions, has been showing signs of weakness — US employers added nearly a million fewer jobs in the 12 months to March 2025 than first reported, according to a recent revision by the Bureau of Labor Statistics, the largest such adjustment on record.[2]
It is an unsettling signal, given that each past slowdown has translated into prolonged bear markets for US equities.[3] Flows into non-US equity funds have accelerated: July marked the biggest inflows into global ex-US equity strategies in more than four and a half years.[4]
It could also be why US investors are casting around for alternatives — and why London, unloved for years, is back on the radar. For investors weighing how to capture this shift, equity-backed financing can be an attractive option: by unlocking liquidity from existing holdings, they can increase exposure to UK equities without having to sacrifice the long-term performance of other positions.
From unloved to record highs
UK stocks trade at a steep discount not only to their American peers but also to their own long-term averages.[5] That gap has persisted even as the economy has surprised on the upside: UK GDP growth in 2025 has outpaced most European peers, supported by resilient consumer demand and a rebound in business investment.[6],[7],[8]
Oddly, UK investors have been slow to realize the growing allure of their market. Instead, foreign buyers — especially US funds — are quietly moving in, recognizing the valuation gap.[9] Several asset management chiefs have gone on record this year pointing out that the UK market’s unloved status belies strong fundamentals.[10],[11] The UK also boasts a deep roster of companies known for capital discipline, strong balance sheets and a tradition of paying steady dividends — qualities that appeal when global growth feels uncertain.[12]
It helps that the pound has been steadily strengthening against the dollar, giving overseas investors both the cushion of attractive entry points and the prospect of FX gains.[13]
Investor sentiment within Britain may also be turning. After years of channeling capital overseas — first in reaction to Brexit and then in pursuit of high-growth US names — domestic investors could be looking to return. UK-focused equity funds still saw outflows of £657 million in August, but they outperformed global funds — marking only the second month in eight years that they have done so.[14] Continued selling suggests domestic investors are taking a more cautious stance towards UK equities for now, potentially in anticipation of the upcoming Budget and its implications for taxation, spending and broader economic growth.
Part of the attraction for non-UK investors, however, comes from shifting trade policies and geopolitics. Governments are countering economic headwinds with fiscal stimulus. Companies in the UK retain preferential access to the US market in several sectors, a tailwind at a time when the world’s biggest consumer market is increasingly cutting itself off from international trade.
The defense sector is clearly on the radar for investors, having helped propel the FTSE 100 to record highs.[15] The government’s recent £250 million defense industrial strategy — aimed at revitalizing local economies and strengthening national capabilities — is adding further tailwinds to a sector already buoyed by rising global military budgets.[16] A recent survey showed that 55% of UK retail investors ranked defense stocks among their top three growth sectors, ahead even of AI.[17]
With interest rates normalizing, the “Magnificent Seven” tech giants locked in an arms race over AI, value stocks — both in the US and abroad — look increasingly compelling. For investors concerned about a growing US tech bubble, history may offer some guidance: after the dot-com bubble burst, non-US value dramatically outperformed.[18] Tellingly, large-cap value stocks have outperformed their traditionally high-flying growth counterparts over the past month.[19]
In that context, equity-linked financing provides a practical way for long-term shareholders to act, giving them the flexibility to ride London’s rerating potential while keeping portfolios balanced against wider global uncertainties.
With Wall Street showing cracks and London trading at a deep discount, international investors may find the UK stock market too compelling to dismiss.
[1] https://www.economist.com/finance-and-economics/2025/09/07/what-if-the-ai-stockmarket-blows-up
[2] https://apnews.com/article/jobs-economy-revisions-labor-department-f4a29a2b948f7bce0d6558824ffe0fd5
[3] https://www.schwab.com/learn/story/dominoes-recessions-history-guide
[4] https://www.reuters.com/business/global-markets-funds-2025-08-13/
[5] https://moneyweek.com/investments/value-investing/investors-rediscover-the-virtue-of-value-investing-over-growth
[6] https://www.reuters.com/world/uk/uk-firms-report-strongest-activity-year-august-pmi-survey-2025-08-21/
[7] https://www.reuters.com/world/uk/uk-consumers-gain-confidence-after-bank-england-rate-cut-gfk-says-2025-07-24/
[8] https://www.bbc.com/news/articles/c0ml42ww740o
[9] https://www.reuters.com/world/uk/uk-consumers-gain-confidence-after-bank-england-rate-cut-gfk-says-2025-07-24/
[10] https://www.fnlondon.com/articles/janus-henderson-ceo-ali-dibadj-uk-is-now-an-attractive-place-to-be-b9f3ef66
[11] https://www.thetimes.com/business-money/economics/article/blackrock-ceo-larry-fink-im-buying-up-undervalued-uk-assets-v2jrxpbkb
[12] https://www.lseg.com/en/insights/ftse-russell/uk-equities-a-haven-for-income-and-value
[13] https://www.reuters.com/world/uk/sterling-firms-against-dollar-after-strong-business-activity-data-2025-08-21/
[14] https://www.calastone.com/news/investors-shun-record-high-stock-markets-as-1-3bn-flows-out-of-equity-funds-in-august/
[15] https://www.reuters.com/world/uk/ftse-100-hits-record-close-defence-financial-stocks-surge-2025-08-14/
[16] https://www.ft.com/content/bd2b71d0-9a20-41c8-a2bd-e4d54ba427d6
[17] https://moneyweek.com/investments/growth-investing/defence-stocks-the-new-big-tech
[18] https://www.troweprice.com/institutional/us/en/insights/articles/2025/q2/will-we-escape-the-non-us-stocks-value-trap-na.html?
[19] https://www.reuters.com/video/watch/idRW190903092025RP1/
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