UK Stock Market Faces 20% Capital Outflow Amid US Visit

On September 16, local time, the President of the United States is scheduled to arrive in the United Kingdom, marking his second state visit to the country since 2019. The royal family has arranged a grand ceremony for the President, including the firing of salutes, a carriage procession, and a state banquet. Despite the anticipation of numerous economic collaborations, investor confidence in the UK stock market remains subdued, with a noticeable bearish sentiment.

The President and his wife are expected to arrive in the UK on the evening of September 16 and will begin their official visit on September 17. Due to ongoing renovations at Buckingham Palace, the President and his wife will be received by the King and other royal family members at Windsor Castle. The royal family has planned an elaborate ceremony for the President, including a salute, a carriage procession, and a state banquet. The President will also have the opportunity to witness a performance by the Royal Air Force's Red Arrows aerobatic team and F-35 fighter jets, a first for any state visit.

The following day, the President and his wife will visit St. George's Chapel to lay a wreath at the tomb of the late Queen Elizabeth II. In the evening, a state banquet will be held in St. George's Hall at Windsor Castle. On September 18, the President will visit the Prime Minister's country residence in Buckinghamshire for bilateral talks and a joint business reception. The two leaders will discuss issues such as Ukraine and closer cooperation between the two countries, as well as efforts to finalize a tariff reduction agreement on steel and aluminum. During this visit, the two countries are also expected to sign a series of cooperation and investment agreements.

According to a statement released by the UK government, the two countries will sign a landmark technology agreement focusing on key areas such as artificial intelligence, semiconductors, telecommunications, and quantum computing. The UK is set to receive over 125 million pounds in investment from American financial companies such as PayPal, Bank of America, Citibank, and S&P Global. Additionally, the two countries will sign an agreement called the "Atlantic Advanced Nuclear Energy Partnership" to accelerate the construction of new nuclear power plants by companies from both nations.

On September 15, White House officials announced that the two countries plan to unveil trade agreements totaling over 10 billion dollars. Several prominent American business leaders, including the CEO of NVIDIA, the CEO of OpenAI, and the CEO of Blackstone Group, will accompany the President on his visit to the UK.

Despite the numerous collaborations, there are still some economic tensions between the two countries. The issue of tariffs remains a key concern for both sides. Although the two countries signed an economic prosperity agreement in May, British exporters still face numerous restrictions, such as the reduction of tariffs on steel and pharmaceuticals, which have yet to be resolved. The UK hopes to use this visit to gain more concessions, particularly in areas such as steel and aluminum quotas, component tariffs, and supply chain security standards. Additionally, the US has expressed concerns about the UK government's regulation of major American technology companies, which could impact future cooperation in the technology sector.

Currently, investors are withdrawing from the UK stock market on a large scale, creating the most pessimistic sentiment in nearly two decades. The latest survey by American bank fund managers shows that the allocation of UK stocks has plummeted to a net underweight level of 20%. This figure is significantly lower than the previous 2% underweight, marking the largest capital outflow since 2004. Investors' holdings of UK stocks have fallen to their lowest level since March 2024. Fund managers' pessimism towards the UK stock market is due to the impending increase in taxes and sluggish economic growth in the UK. Recent economic growth data for the UK has not been encouraging, with signs of weakness in both the service and manufacturing sectors. Additionally, the economic adjustments following the UK's exit from the EU are still ongoing, and the uncertainty surrounding trade relations with the EU continues to have a negative impact on the UK economy. Despite the investment commitments from the US, it remains uncertain whether these investments can significantly improve the UK's economic fundamentals in the short term.

In contrast to the pessimism surrounding the UK, stock allocations in other regions are on the rise. Global stock allocations have reached a seven-month high, with a net overweight of 28%. In Europe, investors are more inclined towards Germany, Spain, and Italy due to their favorable fiscal policies, economic growth, and interest rate environments.