November 11, 2021: -JPMorgan has upgraded U.K. stocks to “overweight,” ending years of caution on British equity markets, which the bank said are now trading at a “record discount.”

The Wall Street giant had held a longstanding cautious call on U.K. equities since the Brexit referendum in 2016, before moving to “neutral” in July 2020 after an evil spell for U.K. stocks and after the worst of the coronavirus pandemic.

With U.K. equities having delivered a more range-bound performance against their transatlantic and European peers over the past 12 months, however, JPMorgan on Monday upped them to overweight in both a European and global context.

Since the Brexit referendum, U.K. equities have lagged the U.S. by a cumulative 50% and the eurozone by 24%, JPMorgan Head of Global and European Equity Strategy Mislav Matejka highlighted in a research note.

JPMorgan’s aggregated data showed that the U.K. has opened up a “record discount” versus other regions, both on a price-to-earnings and a price-to-book basis. The former helps determine the market value of a company’s stock relative to its financial results, while the latter is relative to the book value of its equity.

The discount holds even when value sectors — those which generally trade at a discount relative to their financial fundamentals — are taken out.

“Within the U.K., we held a longstanding preference for FTSE 250 vs. FTSE 100 and

domestic vs. exporters. We now think FTSE 100 could perform better,” Matejka said.

Matejka’s team is funding the upgrade by cutting its exposure to Japan and picking 25 U.K. stocks to best capitalize on the catch-up trade. These include such high-profile names as B.P., Barclays, Jupiter Fund Management, and Vodafone.

JPMorgan’s new overweight position in the U.K. follows a long-held view for European equity analysts at British rival Barclays, who are also overweight the large-cap FTSE 100 for its export-heavy composition, but underweight the more domestically-weighted FTSE 250.