Are UK equities too cheap to ignore despite weak investor demand? Barclays weighs

UK equities remain attractively undervalued despite experiencing the heaviest fund outflows among major regions this year, according to a report from Barclays' European Equity Strategy team. Over the past 12 months, UK equities have performed broadly in line with European and U.S. peers, matching Eurostoxx 50 returns and outperforming French and German benchmarks. However, domestic stocks tracked by the FTSE 250 trade at a forward price-to-earnings ratio of 12 times and a price-to-book ratio of 1.4 times, representing a 20% discount to long-term median levels. Barclays highlights that surging cross-border M&A activity underscores the persistent undervaluation of high-quality UK assets, with deal volumes multiplying three to four times over the past decade and foreign buyers accounting for roughly 80% of transactions. While rising UK gilt yields and expectations for over four Bank of England rate hikes present macro headwinds, Barclays believes much of this hawkishness is already priced in. The bank maintains high conviction across UK Industrials, Financials, Utilities, and Real Estate, noting the FTSE 100 provides defensive resilience through high commodity exposure.