According to a Wall Street bank, the UK stock market is contracting at its most rapid rate ever, even as the FTSE 100 reaches unprecedented highs.
Goldman Sachs noted that a mix of company buybacks and a scarcity of new shares being issued will significantly decrease the number of shares available for investors to buy.
This shrinkage in the market’s public equity supply is expected to drive UK shareholder returns to record levels, analysts claim.
The trend is likely to persist, with a recent Deloitte survey revealing that most UK chief financial officers believe their companies are undervalued and are planning further buybacks.
Share buybacks, where companies repurchase their own stock from the market, diminish the supply of shares, thus elevating the stock price for investors.
This analysis by Goldman arrives as the FTSE 100 is poised for its best week since last summer, spurred by several notable takeover offers.
The UK’s premier stock index soared to 8,136.52 points today, setting a new record for the fourth straight day amid a busy week of mergers and acquisitions.
So far this week, the index has climbed 2.9%, its most substantial gain since July.
Goldman Sachs analyst Guillaume Jaisson commented, “The combination of dividends plus net buybacks suggests a total yield of 5.5% in the UK, compared to 4.5% in Europe (excluding the UK) and 3.5% in the US.”
He continued, “The yield gap with the S&P 500 is the widest ever, which positions UK equities as an appealing entry point into Europe and a way to diversify away from the US.”
He concluded, “In the UK, the blend of buybacks and scarce new issuances has led to the fastest reduction in the net supply of public equity ever recorded.”
