With stocks dirt cheap, is Britain the land of opportunity?

A no-go zone or a land full of opportunities? That’s the question investors are asking themselves about Britain this weekend.

Is this the time to be greedy while others are fearful and see Britain as a bargain, even against the backdrop of chaos in government bond markets? The upward rise in bond yields, driven by growing doubts about the government’s economic stewardship, has reduced the likelihood of rate cuts in the coming months.

Many investors have already voted with their feet. In 2024, a net £9.6 billion was withdrawn from UK funds.

Behind this exodus are fears that UK companies’ profits will come under pressure from the higher minimum wage and national insurance increases.

In recent days, Marks & Spencer and Next have been among retailers citing the negative impact of these Budget 2024 measures.

British companies are seen as cheap because they trade on average around 12.6 times their earnings, compared to as much as 24.2 times in the US.

Putting money into the market at this level makes sense because, as Dan Boardman-Weston, Managing Director of BRI Wealth Management reminds us, ‘the price you pay for an investment is the single most important determinant of its long-term returns. term’.

This perception that bargains are plentiful could trigger a repeat of the 2024 merger mania. Nearly twenty companies in the FTSE 250 were the subject of bids.

Stuart Widdowson, co-manager of the Odyssean Investment Trust, which specializes in smaller companies, said: ‘We believe that UK shares – especially those of smaller companies – remain unloved.’ An improvement in sentiment could turn the fortunes of these stocks around. But in the absence of such a shift, Widdowson argues that UK companies will remain ‘on sale’, and more overseas takeover approaches will emerge.

In the longer-term interests of our economy, the government should of course take steps to halt the contraction of our stock markets, including abolishing stamp duty on share trading – no such tax exists in the US.

But while we wait for Chancellor Rachel Reeves to implement reforms, here are the ways to pick up bargains in the UK markets.

BIG NAME SHARES

Dismay at current government policy may put you off taking a stake in UK plc. But as Jack Roberts, analyst at asset manager IBOSS, points out, British companies are not just local players; they are market leaders with significant global exposure.

He says: ‘FTSE 100 companies generate 74 percent of their turnover abroad, while the more domestically focused FTSE 250 companies generate around 51 percent of their turnover internationally.’

Amid the focus on tax hikes in the budget and concerns about a global trade war caused by newly-elected President Donald Trump’s potential tariffs, Imran Sattar, manager of the Edinburgh Investment Trust, which has interests in Shell, Tesco , Dunelm, Rightmove and NatWest, that these companies have made ‘excellent strategic, operational and financial progress’ over the past two years.

Aerospace giant Rolls-Royce was again a star of 2024, with shares rising almost 90 percent to 582 percent last year, driven by the recovery from the pandemic.

If you want exposure to the full range of UK plc, Fidelity Special Situation and Liontrust UK Growth are rated as best buy funds by three or more of the investment platforms. Check the online factsheets of trusts such as City of London, Law Debenture and Merchants to see if they invest in companies that you don’t own directly or through other funds and trusts.

BRITISH TECH

The focus on Silicon Valley’s tech titans means that hugely innovative British companies in the sector can be overlooked.

But Bank of America has chosen the London Stock Exchange Group as one of its 25 stocks for 2025, increasing demand for the company’s analytics and data services. The price of the £60.58bn FTSE 100 business rose 30 per cent to 11,622p last year, but Bank of America has raised its price target to 13,000p.

The Augmentum Fintech Trust represents a bigger bet on British technology as its shares are at a 37 percent discount to net asset value, although it backs challenger banks such as Tide and Zopa.

The trust’s boss, Tim Levene, says there is a ‘significant gap’ between revenue growth on the trust’s investments and the share price.

SMALLER COMPANIES

When you venture into smaller businesses, it involves high risk at any time. But it could be a potentially rewarding experience during this nerve-wracking period.

The Odyssean Trust share price is at a negligible discount of just 0.38 percent to its net asset value – suggesting that the belief in some quarters that micro-cap stocks could be causing some excitement. Rockwood Strategic has a discount of only 1 percent.

It appears that some investors believe that these companies could attract the attention of a takeover candidate or could become the companies that drive growth and are the source of new jobs.

Supporting Britain at this point can take quite a bit of courage. However, I am not fleeing these markets – mindful of the dangers, but also hopeful of some excitement.