Investing.com — U.K. equities have suffered a “lost decade” since the 2016 Brexit vote, but the underperformance cannot be pinned on that move alone, Barclays strategists argue, pointing to the market’s negligible technology exposure and sustained capital flight as equally major culprits.
Despite headline indices trading near all-time highs, has underperformed and the by 128% and 30% respectively since the referendum. U.K. equities have lost significant assets under management, while U.S. and EU markets have attracted inflows, driving the U.K.’s share of global market cap to record lows of around 3%. Only Chinese equities have fared worse over the same period.
“It is hard to dismiss the fact that there has been an exodus from the U.K. equity market over the past decade. The underperformance since 2016 is indeed due mostly to de-rating, and has come with significant outflows,” strategists led by Emmanuel Cau wrote.
The MSCI U.K. index carries almost no weight in technology, while the U.S. and global benchmarks each allocate more than 30% to the sector and the eurozone around 16%. The strategists also noted that 2016 marked the peak in U.K. equity valuations and foreign direct investment (FDI) flows, with net FDI turning persistently negative in the years that followed.
The supply backdrop provided little cushion, as IPO activity in the U.K. has fallen sharply in both volume and value terms, even as the European ex-U.K. primary market held up. Private equity buyouts and rising share buybacks have added to the shrinkage in equity supply.
On the demand side, domestic ownership of U.K. equities has tumbled from around 80% in the early 1990s to roughly 23% today, with retail investors continuing to favour cash savings accounts over stocks.
“Reforms to boost listings and rebuild the domestic investor base are needed for the trend to reverse, in our view,” the strategists said.
Barclays maintained an underweight stance on U.K. equities, flagging that the expected 20% earnings-per-share growth for 2026 is heavily skewed toward energy and commodities — a tailwind now fading as oil prices fall on a U.S.-Iran deal. The strategists said they prefer the more cyclically exposed eurozone over the defensively tilted U.K. into the second half.
Still, the team identified pockets of opportunity, highlighting U.K. banks as attractive given earnings momentum and undemanding valuations, and called homebuilders and real estate tactically interesting given the risk premium priced in relative to underlying yields.
U.K., along with wider Europe, should still have usefulness as a diversifier, and could shine should there be a pullback in AI and tech trades, the strategists noted.