Four cheap investments for Black Friday

Black Friday seems to creep up sooner and sooner every year — and while I’ve resisted the urge to put up my Christmas tree, I have hit a few early bird sales.

There’s little doubt to the popularity of Black Friday, with total sales reaching £13.3bn last year, up more than 7% year on year*. And this year is expected to be even better, with falling interest rates, an easing cost of living crisis and rising wages all leading to stronger consumption.

But what about investors? Are bargains on offer for them too? If you’re looking at mega-cap stocks making the headlines, you could be forgiven for thinking that assets have become expensive again — but that isn’t the case.

Here, we highlight four cheap areas still to be found for investors, starting with our home market:

The UK

Investor neglect of UK equities has pushed valuations to exceptionally cheap levels just about every way you look at them. They look particularly undervalued relative to the US, which now makes up a dominant 72.7% of developed markets, as represented by the MSCI World Index. The UK has sunk to just 3.6%, trailing behind Japan and just outweighing Canada**.

Alexandra Jackson, manager of the Rathbone UK Opportunities fund, reports that October delivered the worst monthly performance for UK equities so far this year, with negative returns across large, mid and small-cap companies as investors tried to pre-empt the Budget. She concluded: “We sense that, for global investors who are increasingly the most important audience for UK equities, the Budget could turn out to be something of a clearing event. It’s easy to get bogged down in the detail (and that detail is important, of course), but looking at the UK from the outside, there was nothing in the Budget that suggests that the UK warrants special negative treatment.”

Research from Schroders is also optimistic: “Although frustration at previous underperformance may have led some to simply stop actively considering UK equities for investment, it could be time to revisit that stance. Valuations remain weighed heavily in the UK market’s favour. Long-term investors should take note.”

Funds to consider: AXA Framlington UK Mid Cap & IFSL Marlborough Special Situations

European Smaller Companies

It’s often forgotten, but the European economy is one of the biggest in the world and includes some of the most dynamic companies. If the European Union was a country, its economy would rank as the third largest globally, lagging only the United States and China.

The region has potentially been avoided for good reason: rising interest rates and geopolitical tensions, combined with ongoing supply chain volatility in the aftermath of the pandemic, have hit this sector hard. However, low valuations make European smaller companies an exciting hunting ground. These diverse and poorly understood companies are ideal for stock pickers to deliver long-term value.

While many investors see Europe in a bind following the Trump election, Rob Burnett, manager of the WS Lightman European fund, sees reasons for optimism: “We believe it is likely Friedrich Merz will become Chancellor of Germany in February, and he is committed to a more pro-growth agenda. Europe is also clearly exposed to the Chinese economy, and we see some reasons for optimism in 2025, despite the pessimistic consensus. Tariffs are coming but policies are in place that may support Chinese consumption next year.”

There’s no doubt that the recent market backdrop has been difficult, but this difficult environment has the silver lining of potentially creating more investment opportunities as smaller company stocks have become cheaper in comparison to larger company stocks.

Fund to consider: Janus Henderson European Smaller Companies

Property

UK REITs have had a more positive environment lately with base rate cuts, growing economy and growing rents all benefitting the sector. Yet, despite these favourable conditions, UK REITs continue to trade at historically wide valuation discounts. This presents a compelling opportunity for investors. After a difficult period for the asset class, things are looking up.

Roger Skeldon, manager of the TIME:Commercial Long Income fund, sums up the prevailing view on REIT markets today: “Transactional levels in the real estate market remain relatively low but activity is expected to return to a more normalised state during the remainder of 2024 and into 2025, as further clarity on factors such as interest rate levels become visible and confidence increases around real estate.”

Funds to consider: TR Property Investment Trust & Cohen & Steers Global Real Estate Securities

Read more about the ongoing opportunities in the REIT market

China

Poor demographics, a collapsing property market, out-of-control debt and a plethora of low quality companies add credence to the view that China is in structural decline – add Trump and the potential for great geopolitical challenges (tariffs etc) and you can see why investors may choose to steer clear.

However, for many the market is still too big to ignore. While less extreme after the recent move, valuations in China remain compelling relative to history and global peers. MSCI China’s forward price to earnings ratio has risen from 9.1x on September 24 to 10.5x, which is broadly in line with the 15-year average (10.8x)*** – that is still relatively cheap in a world where many regions appear fully valued.

Jihong Min, manager of the T. Rowe Price Asian Opportunities fund, has recently moved from a 3% underweight to a neutral position in China, with the intention to buy further dips from this point****. Those looking to pick up a “double discount” in China might turn their attention to JPMorgan China Growth & Income. The trust is a high conviction portfolio of 60-80 stocks with a focus on higher quality companies in the Greater China region and has a current discount of 13.7%^.

Funds to consider: Allianz China A-Shares & FSSA Greater China Growth

We consider more of the China debate on our recent market review podcast: Listen here.

*Source: Mintel, UK Black Friday Market Report 2024
**Source: MSCI Index Factsheet, 31 October 2024
***Source:  JPMorgan Asset Management, 7 October 2024
****Source: T. Rowe Price, November 2024
^Source: FE Analytics, 18 November 2024