Passengers cross London Bridge with a view of Tower Bridge and the Canary Wharf district in London, UK, on Tuesday, November 18, 2025.
Bloomberg | Bloomberg | getty images
London-listed equities have extended their outperformance against the US to 2026 after a stellar 2025 – but cracks are beginning to appear as the war in Iran drags on.
FTSE 100 The home index of shares of the UK’s most valuable listed companies has risen about 5.3% so far this year, putting it ahead of all three of Wall Street’s major averages and building on its 2025 momentum.
In 2025, the FTSE 100 rose 21.5%, outperforming all three of New York’s largest indices.
Alessandro DiCorrado, head of value at Ninety One, told CNBC in an email on Wednesday that U.K. indices offered “surprising” opportunities ranging from “HALO” sectors such as energy, mining, utilities and industrials to asset-light software and data businesses, which are considered more resilient to disruption.
Russ Mould, investment director at AJ Bell, agreed that there were many factors working in the UK market’s favour, many of which “have been arguments against or at least in favor of investing in it over the last decade.”
“One-fifth of the (FTSE All-Share Index’s) market cap (and earnings and dividends) comes from miners and oilsands,” he said in an email, adding that with one-fifth of the index made up of health care and consumer staples firms, it provides “a lot of defensive potential.”
“Thus, the UK is a good hedge against current geopolitical risks and concerns over supply chain and raw material availability, as oil prices remain high, gold prices are stable and some industrial metals are setting new highs.”
Another thing luring investors into the UK market is the attractive cash returns offered by its constituents, Mould said, through a combination of ordinary dividends, special dividends and share buybacks as well as acquisition payments.
“The total cash returned to investors through these mechanisms in 2025 was around £180 billion and analysts’ forecasts for dividends, buyback announcements and live takeovers already put it at around £130 billion, or 4.6% of total market capitalization (for 2026),” he said. “As a cash yield, it beats the Bank of England base rate and inflation, while not being much lower than the 10-year gilt yield.”
“The UK is unloved, and has long underperformed, so it may offer better value than the US, which has long been lauded as the only option in the city and has performed better as a result.”
cracks in the market
But the London market faces long-standing problems that have made it less suited to its defensive characteristics in a market environment. These include shallow pools of local capital compared to the US Slow stock price movements, some quoted technology companies, and an exodus of companies frustrated by high listing costs.
Last year was something of a comeback for London’s equity market, which benefited from a trend of geographic and regional diversification as unexpected White House policy roiling global markets.
London’s benchmark index has outperformed in the last decade S&P 500, nasdaq composite And Dow Jones Industrial Average Only three times on an annual basis. While US indexes rallied in 2020 immediately following the Covid-19 pandemic, the FTSE 100 ended the year in negative territory, and political turmoil in the wake of Brexit also hit international confidence in the UK as an investment destination.
And the U.S. index has outperformed London’s FTSE 100 since the Iran war began in late February, a turnaround Jonathan Merchant, a fund manager at Mattioli Woods, described as “astonishing.”
“It is likely due to the specific nature of the conflict that, given significant internal supplies, the US is more insulated from energy shocks,” he said, adding that US performance was also boosted by a stronger dollar.
Britain’s inflation rate rose to 3.3% in March as fuel prices rose in the wake of the Iran war, data published this week showed. The UK is a net energy importer sourcing around 40% of its fuel from abroad, making it more sensitive to volatility in global energy markets than the US, a net exporter of energy. Oil and gas prices have risen since the war in Iran began, thanks to the destruction and shutdown of energy infrastructure and effectively closing the Strait of Hormuz, a vital shipping route.
Britain has also faced domestic political and economic problems. But market watchers did not appear worried by the growing pressure on the British economy.
Ninety One’s DiCorrado said that despite the economic and political turmoil prevailing in Britain, the UK market “paints a more nuanced picture than the domestic backdrop.”
He said many of the largest London-listed companies are headquartered outside the UK or operate globally, with 75% of the FTSE 100’s earnings coming from overseas.
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“While consumer-facing sectors remain under pressure from higher energy costs and higher mortgage rates, the equity market itself is highly international, with many companies generating most of their revenues overseas,” he told CNBC.
Merchant said the UK also benefits from an attractive valuation backdrop. He said, what happens next may depend on whether US President Donald Trump is able to reach an agreement with Iran to stop the war.
“If the conflict proves short-lived, there could be renewed interest in markets outside the US, including the UK,” he said.
Tony Meadows, head of investments at UK-based BRI Wealth Management, told CNBC that global investors are missing opportunities in London markets.
“To quote Shakespeare, ‘the truth will come out’ and in the market context the truth is always valued based on value for money,” he said.
“To a large extent, global investors could, and have, ignored the UK market entirely, but that means they have been blind to the value or valuation opportunity in UK quoted companies, and at some point the ‘value will blow out’ quote.”
However, Meadows said the relative importance of the British stock market has declined due to years of US tech dominance, and a resumption of this trend could mean the UK’s outperformance is short-lived.
“Last year was in many ways the first year the UK actually outperformed the US, partly because of a return of interest in old sectors and partly because of the diversification of global and US investors, but it was led by the FTSE 100, not the more domestic indices,” he said.
“For the UK to maintain its outperformance we need investors to look for value in mid-cap and smaller companies and yet this does not appear to be happening on a sustained basis, even though the value is there.”
