FTSE 100: JP Morgan Overwieght the UK in 2023

Above: The FTSE 100 (dark blue) has outperformed the S&P 500 (orange) and DAX in 2022.

Equity strategists at JP Morgan say it is worth staying overweight on UK-based stocks as they look ahead to 2023.

The Wall Street bank turned Overweight on the UK - i.e. increased exposure to UK stocks - in November, bringing a six-year Cautious recommendation to an end.

The call came at the back of a year that saw the FTSE 100 outperform all its major developed market peers for the first time in years.

The outperformance was largely a result of the heavy weighting of commodity-focussed names on the UK's leading index, a beneficial mix in a commodity supply crisis.

"Despite UK being the best performing DM market in 2022, in both local currency and USD terms, it is still trading at a record discount vs other regions," says Mislav Matejka, Head of Global and European Equity Strategy at JP Morgan.

JP Morgan says the UK offers the highest dividend yield globally, and exporters benefit significantly from a weak GBP.

"China reopening helps, as well," adds Matejka.

Furthermore, JP Morgan believes the Bank of England will be successful in arresting the UK bond market volatility and that fiscal credibility will
hold.

Elsewhere, the Eurozone "looks attractively priced" says Matejka.

Although the Eurozone remains in the shadow of geopolitics, investor sentiment is overly cautious on the region.

"On P/E relative metric, Eurozone is trading at a record discount to the US, and earnings downside will be relatively mild this time around, in our view, partly given FX tailwind. We think that ECB will be successful in keeping peripheral spreads under control," says Matejka.

JP Morgan is meanwhile Underweight the U.S., saying it is trading at relative Price/Earning and Earning Per Share highs, and could keep unwinding some of the strong run that it delivered over the past 10 years.

"We continue to believe that International equities will be trading better than
the US, given significant valuation discount, among others," says Matejka.