UK Equity Sectoral Divergence: Riding Resource Resilience While Navigating Domestic Headwinds

The UK equity market is increasingly defined by stark contrasts. While mining and energy stocks thrive amid dollar weakness and geopolitical fireworks, domestically exposed midcaps like Moonpig face headwinds from slowing retail sales and trade uncertainties. This divergence underscores a broader macroeconomic truth: companies with global pricing power and exposure to commodities are outperforming those tied to UK-specific demand. Let's dissect the opportunities and risks—and where investors should place their bets.

Mining & Energy: Riding the Commodity Wave

The mining and energy sectors are the darlings of this environment, buoyed by two key tailwinds: dollar weakness and geopolitical tensions.

1. Dollar Decline Fuels Commodity Pricing Power

The U.S. Dollar Index (DXY) has fallen nearly 10% year-to-date in 2025, hitting multi-year lows. This weak dollar dynamic makes dollar-denominated commodities—from oil to silver—cheaper for buyers using stronger currencies, driving demand.

Fresnillo, Mexico's largest silver producer, exemplifies this trend. Its shares have surged alongside the DXY's decline, as its global sales benefit from weaker dollar pricing and rising industrial demand for silver (critical in EVs and solar panels). Similarly, Shell (LSE: SHEL) leverages its global energy portfolio, with oil prices finding support from inventory drawdowns and emerging market growth.

2. Geopolitical Tensions Add Fuel to the Fire

Supply disruptions in key regions—such as Middle East oil exports or South American mining operations—keep prices elevated. Fresnillo's Mexican operations, while stable, benefit from broader commodity scarcity fears. Shell, meanwhile, is capitalizing on Europe's energy transition and Asia's infrastructure boom.

Domestic Midcaps: Stuck in a Slump

On the flip side, UK midcaps reliant on domestic consumer spending are struggling. Moonpig (LSE: MOON), a greeting card retailer, epitomizes this challenge.

Moonpig's Downgrade: A Cautionary Tale

Moonpig's FY25 revenue is now expected to fall short of expectations due to weak UK consumer sentiment. With 80% of its sales tied to the UK, it's acutely exposed to rising living costs and trade uncertainty. Even as the company reported modest revenue growth (2.6% YoY), its Experiences segment (holiday stays and dining) faces delays in monetization, and its Dutch Greetz brand underperformed.

Analysts like Panmure Liberum warn that consensus growth forecasts for Moonpig may be overly optimistic. The company's CEO stepping down adds to investor anxiety, though its strong free cash flow (up 8.4% to £66.1 million) and share buybacks offer some solace.

The Investment Thesis: Overweight Cyclicals, Underweight Domestic Sensitivity

The message is clear: rotate toward sectors insulated from UK-specific risks.

Top Picks: Fresnillo & Shell

• Fresnillo (FRES): Silver prices are rising due to dollar weakness and EV demand. Fresnillo's 18% stake in the Cobre Las Cruces project (a joint venture with First Quantum) adds growth catalysts.
• Shell (SHEL): Its balance sheet is strengthened by high oil prices and its pivot to renewables. The company's dividend yield of ~6% offers downside protection.

Avoid Moonpig Until Trade Clarity Emerges

Moonpig's valuation is at risk until UK retail sales rebound and trade tensions ease. With its shares down 20% YTD and P/E multiples compressed, it's a hold—not a buy—until macro conditions stabilize.

Conclusion: Play Global Strength, Avoid Domestic Weakness

The UK market's bifurcation is no accident. Investors should overweight cyclicals with global pricing power (mining, energy) and underweight domestic consumer plays until the economy stabilizes. Fresnillo and Shell represent the former; Moonpig embodies the latter. Stay nimble, and let the commodity bulls carry you.

Disclosure: This analysis is for informational purposes only. Investors should conduct their own research before making decisions.