LONDON (Reuters) - Deutsche Bank joined a growing chorus of brokers becoming more positive on British stocks on Monday, upgrading its recommendation on UK equities to “overweight”, citing cheap valuations and a predicted boost from a weaker pound.
“The UK is the cheapest country on our sector valuation scorecard,” said Deutsche Bank’s European equity strategy team in a note.
Concerns that Brexit would undermine the UK economy and the pound had discouraged a number of foreign investors from buying shares in British companies after the June 2016 vote.
The UK’s defensive characteristics - with a heavy weighting in high dividend-yielding sectors - mean it tends to outperform in times when euro zone Purchasing Managers’ Index (PMI) momentum, a gauge of economic health, is negative, the strategists said.
The German bank’s move followed Citi which went overweight on UK stocks on April 5, while UBS Wealth Management closed its underweight recommendation on the market, moving it up to “neutral”.
Britain's blue chip FTSE .FTSE index is down 4.2 percent since the beginning of the year while the Euro zone STOXXE .STOXXE is up 0.5 percent.
Deutsche Bank strategists in the same note downgraded Spanish equities from overweight to benchmark, saying the market would suffer from the Euro zone’s negative economic growth momentum.
The German bank remained underweight Italian, German and French equities, while it kept an overweight recommendation on Switzerland.
Reporting by Helen Reid, editing by Julien Ponthus