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Every month, the inflow and outflow of investor funds to the stock market is measured. Taking a look at where money is flowing in or out can give me a good sense of current investor sentiment. Based on the latest data for November, something very interesting happened that could spark a rally into next year.
Data details
According to data provider Calastone, funds invested in UK equities received a net £317m from retail investors for the month. This is important because for the last 41 consecutive months (since May 2021) UK funds had outflows.
For me it’s big. One point it highlights is that private investors see value in UK equities. This does not surprise me. I wrote earlier this month why I think that FTSE 100 would do well in 2025 compared to S&P 500. The current one price-to-profit the ratio of the S&P 500 is 31.17. But for the FTSE 100 it is just 15.5. So some of the inflow into UK stocks may be related to investors booking profits on potentially overvalued US stocks and moving that money into UK ideas.
It could also indicate that sentiment around future growth prospects for the UK is improving. During the last quarter of the year, investors start to think about where they want to allocate money for the following year. I know I do. So the inflow in November could indicate the start of a stock market rally, based on more inflows in the coming months. Of course, if more money flows into UK shares, the respective share prices will go up.
Where to go from here
Some may already be thinking about how to invest based on this information. Buying a FTSE 100 tracker might be something to consider. But in the case of a specific stock, AstraZenecas (LSE:AZN) worth considering, I think.
The company is the largest share of market value in the FTSE 100. So for investors who simply want to buy a mature large-cap stock, AstraZeneca could benefit.
It also appeals because of being in the pharmaceutical sector. This area has a proven track record of profitability. With the aging population in the UK, the demand for drugs and related products is only likely to increase. This should future-proof revenue for AstraZeneca. It is also a defensive sector, meaning that even if the UK goes into recession, people will still need to buy medicine.
The stock is up a modest 1% over the past year and trades well below its 52-week high. This factor can appeal to investors, who feel they can get good value. However, I would be cautious about assuming this, as the P/E ratio is 34.28. This is well above the index average and is a risk to note.
The bottom line
I think the November data is significant. For investors who agree, it may be worth considering using excess cash and putting the money to work in UK equities over the coming month, to potentially benefit from more inflows next year.
