Britain's economy is about to get a lot more money

5 minutes
Britain's economy is about to get a lot more money

LONDON Cinema tickets, traffic jams, office footfall, web conferencing, even private jet leasing: investors parsing motley metrics for clues on how to make money when a major economy is reopens.

Britain's blistering COVID 19 vaccination rollout is helping her economy open faster than much of continental Europe, potentially providing a blueprint for investors in trying to map how the recovery trade will play out across the rest of the region.

The United Kingdom has been gradually tightening restrictions, with much of the country set to fully reopen on June 21, and consumers who have accumulated savings during lockdowns are starting to spend.

As a result, British investors who had largely scubbed UK stocks since the 2016 Brexit referendum are back; they now hold the largest international overweight in 7 years -- their UK share holdings relative to Britain's size in global equity benchmarks, according to the BofA monthly survey of fund managers.

The UK suffered disproportionately from the lockdown and is now stronger and faster than other European countries, said Kasper Elmgreen, Head of Equity at Amundi, Europe's biggest fund manager.

Why aren't traders picking up on the markets?

They subsequently turned to various indicators including traffic congestion and the flight activity. Based on these and other metrics, Amundi figures that share the market in retail, budget airlines, media and beverage firms have further space to run.

From 17 May to 24 May, they reopened and box office profits to the end of that month topped 25million pounds according to the UK Cinema Association. That compares with 16.6 million for the whole month of May 2019 before the pandemic upended everyday life.

Investment banks are also compiling data to guide clients' decisions.

Jefferies, for example, said its exclusive consumer behaviour measurement found that the recent e-commerce and web-conferencing subindexes - so powerful as people sequestered themselves at home - had slipped off of big trends. The use of public transport for public work also increased to 11 percentage points from the baseline level to June 8 to 118%, while traffic congestion had hit 107%.

Based on such data, The restaurant group advised clients to buy shares in Cineworld and the restaurant chain in 2021, although still down about 50% and 18% on their pre-pandemic price lines.

Sustained high level of web traffic to the property portals leads us to also recommend home improvement plays, like Kingfisher and Travis Perkins added Jefferies.

The re-opening hopes, along with the hot weather, have also boosted the hard-hit hospitality sector shares such as pub groups Mitchells and Butler and Wetherspoons.

Currently, fitness subscription app ClassPass reports that new memberships in London rose 600% in the week to May 24 with Britain one of its fastest-growing markets across the 30 countries where it operates.

More than half of British adults have had two vaccine doses, double the percentage seen in many Eurozone countries.

Mobility numbers, weekly consumer and business surveys and pub companies' real customer data signal Britain is already beginning to boom, said Phil Milburn, co-manager of Liontrust's Global Fixed Income team.

Britain's reopening is at least several weeks ahead of the region and Milburn regards it as a portent of what awaits for European business activity.

We are now seeing signs that the UK is taking off. The Euro zone is behind, but is catching up soon, he added. Consumer behaviour seems to be pretty similar across countries - once vaccinated people are happy to risk.

At 87% of pre-COVID levels, Jefferies' economic activity index is below Britain's 94% but is growing and has increased two percentage points over the past week.

In Britain where reopening is even more advanced in some areas than in the United States, activity has risen to 97% of pre-COVID levels.

Investors are also watching Citi's economic surprise index which measures the degree to which the data beat forecasts. The currency sector is around seven-month highs while the UK index hasn't budged much since March.

Milburn at Liontrust noted one single potential advantage that the euro zone holds in the longer term.

The EU stimulus has boosted consumer finances by strengthening service sector spending, but the euro zone's infrastructure investment focus could mean less of a boom, but a more sustainable boom, he added.

In fact, some people doubt this activity surge can last.

A virus variant first detected in India could delay plans to reopen sport stadia and clubs while potentially hurting the pounds, Nomura analysts warned.

The government has reduced the list of green countries to visit tourists and bought shares in the British Airways airline EasyJet and IAG operator.

But the well-heeled who want to travel can still capitalise on the broader easing of curbs.

John Keeble, who runs the private jet broker The Charter Company in Luton, has four flights booked for the first half of June including trips to Iceland and Greece. He sold no flights on holiday last year for months on end.

Chartering costs anywhere between $4,800 an hour for a smaller jet to $25,000 an hour for a 40 seater. Based on the strength of the recent interest, Keeble anticipates that leisure travel will return to prepandemic levels by mid 2022.

However, business travel can take longer to rebound in an effective way.

There is no doubt there is very repressed demand, he said.

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