British stocks are looking particularly attractive after a fresh bout of market volatility, according to the chief investment officer of financial firm Wren Sterling. Global equities have recovered from a turbulent start to the month. The slump has been blamed on fears of a U.S. recession, signs of exhaustion in the artificial intelligence trade and the rapid unwinding of yen-funded carry trades. The recovery has enticed some investors to tiptoe back into shares of U.S. tech giants, although strategists have warned that markets could still be vulnerable to further turmoil. Against this backdrop, Wren Sterling’s Rory McPherson believes British stocks look “cheap” and “undervalued.” McPherson told CNBC’s “Squawk Box Europe” on Tuesday that the British market, which he described as “ripe for dividends,” had posted some “fantastic” gains in the run-up to the early August sell-off. He cited banks as some of those that had beaten expectations. Asked whether investors should view UK stocks as part of a move away from US technology companies, McPherson replied: “Well, we think so. I mean, if you look at the market like the UK one, it’s at 12 times earnings-to-earnings, it’s cheap, it’s undervalued. Amazingly, last week data came out showing 37 consecutive months of outflows from UK equity funds, so it’s still an outflow.” He added: “If you look at the economy, it’s growing strongly. Consumer savings are over 11% and companies are buying back their shares, they’re not trading at a challenging valuation and we’re on track to have the first quarter of positive earnings growth in a year in the FTSE 100. So that’s a positive backdrop for the UK.” McPherson said some investors had already been tempted to reinvest in US technology stocks after they had “some of the wind taken out of their sails” by elevated valuations, but in his view “they’re still trading at quite challenging multiples… and still represent a very concentrated trade.” Analysts have recently become bullish on UK stocks, which have been out of favour for years. The BlackRock Investment Institute, an arm of US investment firm BlackRock, said in early July it believed a “tactical case” could be made for UK stocks given the “perceived political stability”. The centre-left Labour party won a landslide election victory on July 4, unseating the centre-right Conservatives after 14 years. Looking ahead, McPherson told CNBC that consumer prices could reach 2.5% by year-end, well above the Bank of England’s 2% target, but such a prospect should not deter the central bank from cutting rates. Data released on Wednesday showed that UK inflation was 2.2% in July, slightly below expectations, though above the 2% levels seen in May and June. Earlier this month, the Bank of England made its first rate cut in more than four years, raising the benchmark interest rate to 5%.
