{"id":26425,"date":"2023-06-23T07:10:16","date_gmt":"2023-06-23T11:10:16","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-u-k-stock-market-has-turned-into-a-wasteland-as-pension-funds-recoil-why-u-s-funds-may-pull-back-too\/"},"modified":"2023-06-23T07:10:18","modified_gmt":"2023-06-23T11:10:18","slug":"the-u-k-stock-market-has-turned-into-a-wasteland-as-pension-funds-recoil-why-u-s-funds-may-pull-back-too","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=26425","title":{"rendered":"The U.K. stock market has turned into a wasteland as pension funds recoil. Why U.S. funds may pull back too"},"content":{"rendered":"
\n

One of the less-told stories in financial markets is how the U.K. stock market has become something of a barren wasteland. <\/p>\n

On Citigroup\u2019s numbers as of last week, U.K. stocks trade at a price-to-earnings ratio for 2023 of 10.6, compared to 20.7 in the U.S. and 17.2 globally. And while taking out high-flying techs would shave U.S. P-to-E down to 18.4, it wouldn\u2019t have any impact on the U.K. numbers at all. No wonder SoftBank is deciding to list U.K. microchip designer ARM in the U.S. rather than its native country.<\/p>\n

\n

Many ascribe the slow descent to an accounting rule change in the 1990s, that any pension fund liability would be reported as a corporate liability. (That change was prompted by the scandal where Robert Maxwell \u2014 now known better as the father of Ghislaine \u2014 raided his company\u2019s pension fund.) The impact of that change is that these pension funds moved toward a liability-driven style of investing that no longer needed equities. According to Goldman Sachs, equities weightings of corporate pension funds in the U.K. have fallen from two-thirds to \u201cnow a rounding error\u201d despite assets rising sixfold over the last 25 years.<\/p>\n

That\u2019s a lengthy introduction to an analysis of U.S. defined benefit pension fund flows from J.P. Morgan strategist Nikolaos Panigirtzoglou. These funds rebalance when there\u2019s been positive total returns for equities and negative total returns for bonds. Looking at Federal Reserve data, he says that in quarters where the gap is more than 10%, there has on average been equity selling of $80 billion, and when the gap has been between 5% and 10%, equity selling has on average been around $40 billion. It suggests around $55 billion of equity selling based on the current quarter-to-date return gap, he finds.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

U.S. private pension funds are well funded \u2014 apart from a recent downward revision of a cool $150 billion, possibly owing to greater than expected investment losses on private assets \u2014 but that gives them an incentive to further de-risk, to lock in improvements in their funding ratios. That happened last year when, despite the bond market sell-off that saw the U.S. Aggregate index return nearly -15% in the first three quarters of 2022, the bond allocation of private U.S. defined benefit pension funds actually rose, from 38% to 40%.<\/p>\n

Granted, state and local pension funds are rather infamously not well funded, so they don\u2019t have that incentive \u2014 but they still have high equity allocations and a bond allocation that is close to a record low of just under 20%, he says. \u201cThere is some incentive from an asset\/liability mismatch perspective to buy bonds particularly given [U.S. Aggregate] yields at 4.7% remain at attractive levels relative to the past 10-15 years,\u201d he says.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

Finally, he notes, bond allocations should gradually increase as a progressively larger share of defined benefit pension fund beneficiaries are close to or in retirement. Bond allocations in the U.S. are dwarfed by those in Europe and Japan.<\/p>\n

The markets<\/h2>\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

U.S. stock futures
\n ES00,
\n -0.52%<\/bg-quote><\/p>\n

NQ00,
\n -0.68%<\/bg-quote>
\n were pointing to a weaker start, a day after both the U.K. and Norway central bank hiked interest rates by a half point. Crude futures
\n CL.1,
\n -1.68%<\/bg-quote>
\n slumped over $1 per barrel to $68.36, and the yield on the 10-year Treasury
\n TMUBMUSD10Y,
\n 3.741%<\/bg-quote>
\n fell 5 basis points to 3.74%.<\/p>\n

Try your hand at the Barron\u2019s crossword puzzle and sudoku games, now running daily along with a weekly digital jigsaw based on the week\u2019s cover story. To see all puzzles,\u00a0click here.<\/strong><\/p>\n

The buzz<\/h2>\n

Friday sees the release of the flash purchasing managers indexes for June \u2014 a similar measure for the eurozone slumped below economist expectations \u2014 and Cleveland Fed President Loretta Mester caps a week of Fedspeak with a speech in the afternoon.<\/p>\n

3M shares
\n MMM,
\n -1.02%<\/bg-quote>
\n rose 4% in premarket trade as the company said it would pay $10.3 billion to settle claims it was responsible for so-called \u201cforever chemicals\u201d in drinking water. <\/p>\n

GSK shares
\n GSK,
\n -1.34%<\/bg-quote>
\n jumped in London trade as the pharmaceutical said it reached a financial settlement ahead of a California trial due to start next month on the Zantac heartburn medication where it didn\u2019t admit liability. <\/p>\n

Virgin Galactic shares
\n SPCE,
\n -6.83%<\/bg-quote>
\n fell as the space tourism company said in a filing it seeks to raise $400 million to improve its fleet and scale its business. <\/p>\n

Best of the web<\/h2>\n

Via a top-secret system, the U.S. Navy heard what it thought was the Titan imploding, days ago.<\/p>\n

Some $64 billion of commercial real estate is now called distressed. <\/p>\n

The loony conspiracy theory threatening Wall Street. <\/p>\n

Top tickers<\/h2>\n

Here were the most active stock-market ticker symbols as of 6 a.m. Eastern.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
\n Ticker<\/p>\n<\/td>\n\n Security name<\/p>\n<\/td>\n<\/tr>\n
\n TSLA,
\n +1.98%<\/bg-quote>\n <\/td>\n		\n Tesla<\/p>\n<\/td>\n<\/tr>\n
\n GME,
\n -0.45%<\/bg-quote>\n <\/td>\n		\n GameStop<\/p>\n<\/td>\n<\/tr>\n
\n NVDA,
\n -0.05%<\/bg-quote>\n <\/td>\n		\n Nvidia<\/p>\n<\/td>\n<\/tr>\n
\n SPCE,
\n -6.83%<\/bg-quote>\n <\/td>\n		\n Virgin Galactic<\/p>\n<\/td>\n<\/tr>\n
\n AMZN,
\n +4.26%<\/bg-quote>\n <\/td>\n		\n Amazon.com<\/p>\n<\/td>\n<\/tr>\n
\n AMC,
\n -7.95%<\/bg-quote>\n <\/td>\n		\n AMC Entertainment<\/p>\n<\/td>\n<\/tr>\n
\n AAPL,
\n +1.65%<\/bg-quote>\n <\/td>\n		\n Apple<\/p>\n<\/td>\n<\/tr>\n
\n MULN,
\n -10.63%<\/bg-quote>\n <\/td>\n		\n Mullen Automotive<\/p>\n<\/td>\n<\/tr>\n
\n NIO,
\n -1.65%<\/bg-quote>\n <\/td>\n		\n Nio<\/p>\n<\/td>\n<\/tr>\n
\n MANU,
\n +1.45%<\/bg-quote>\n <\/td>\n		\n Manchester United<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

The chart<\/h2>\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

The Bank of England made a surprise half-point rate hike on Thursday, responding to stronger-than-forecast inflation. The team at CrossBorder Capital say it is one of the biggest monetary policy mistakes in recent times. They cite this chart, plotting their liquidity index advanced by 12 months \u2014 remember, central bank rate hikes take a while to be transmitted to their broader economy \u2014 and the orders and output components of a leading industrial survey. Economists at Goldman Sachs separately say they expect another 50 basis point hike from the Bank of England in August.<\/p>\n

Random reads<\/h2>\n

Elon Musk\u2019s mom doesn\u2019t want her son to fight Mark Zuckerberg.<\/p>\n

A man spent nearly two years at a five-star Indian hotel without paying. <\/p>\n

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern. <\/strong><\/p>\n

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton. <\/strong><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

One of the less-told stories in financial markets is how the U.K. stock market has become something of a barren wasteland. On Citigroup\u2019s numbers as of last week, U.K. stocks trade at a price-to-earnings ratio for 2023 of 10.6, compared to 20.7 in the U.S. and 17.2 globally. And while taking out high-flying techs would […]<\/p>\n","protected":false},"author":1,"featured_media":26426,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-26425","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe U.K. stock market has turned into a wasteland as pension funds recoil. 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