Foreign Investors Are Rediscovering London's Hidden Value in 2025

18 July 2025

For years, London's stock market has sat in the shadows, its underperformance compared to continental Europe a long‑standing source of investor skepticism. Yet 2025 tells a different story. After a decade of tepid returns fueled by Brexit jitters and broader economic headwinds, foreign capital is now flowing back into the UK’s blue‑chip index at a pace not seen in years. On July 18, the FTSE 100 surged past the key 9,000‑point barrier, marking a near‑10% gain for the year to date, while the STOXX 600 in Europe rose a more modest 7.5%. In dollar terms, the FTSE’s performance an impressive 18% gain stands as its best rally since 2009

Multiple catalysts are driving this turnaround. The recently signed UK–US trade agreement has brought renewed optimism to the market, underpinning expectations of fewer tariffs and smoother transatlantic commerce. Simultaneously, the UK's Financial Conduct Authority is embarking on deregulatory reforms aimed at boosting capital market efficiency. Adding to that, Chancellor Rachel Reeves is urging the financial industry to counter the entrenched negative narrative surrounding UK equities with a more positive tone

A key attraction now is valuation. Following years in the discount bin, the FTSE 100’s forward price‑to‑earnings ratio has climbed to approximately 12.5, narrowing the gap with Europe’s STOXX, which sits at around 14.1—the slimmest difference in eighteen months. As a result, UK stocks appear increasingly attractive to global investors who previously underinvested in the market following Brexit.

Asset managers are taking notice. Justin Onuekwusi of St. James’s Place noted that major allocators non‑UK endowments, pension funds, and wealth managers are stepping back into the market after a prolonged absence. Michael Stiasny of M&G Investments echoed this sentiment, describing the current FTSE rally as "the foothills" of a broader rebound from historic undervaluation.

Two dynamics are especially key. First, the pound sterling's 7% strength against the dollar has caught the attention of foreign investors, offering currency gains that complement stock performance. Second, the composition of the FTSE with around 80% of revenues generated overseas, particularly by defensive sectors like healthcare, utilities, and food retail provides a buffer against a sluggish domestic UK economy.

Companies like AstraZeneca, Tesco, Anglo American, and BP have benefitted from the favorable mix; the market coup de grace for these steady contributors is confirmed by the comment from AJ Bell analyst Dan Coatsworth, who likened the FTSE to “a calming cup of tea and biscuit in an uncertain world”

Still, caution lingers. The UK economy is weighed down by high inflation and slowing business activity, while foreign equity inflows into the FTSE remain dwarfed by those into broader Europe. Barclays data show a net outflow of approximately US $20 billion from UK equities in early 2025, even as Europe attracted over US $13 billion. Meanwhile, analysts like Sebastian Raedler from Bank of America raise the point that sterling gains may be inflating the FTSE’s performance, potentially masking underlying economic fragility.

But sentiment has shifted. Fund management titan Ninety One notes a revival in institutional confidence, with UK equity flows reversing after years of outflows. Their campaign targeting undervalued UK companies shows early signs of progress. Market watchers suggest this could be the start of a more sustained recovery, particularly where value meets stability.

Ultimately, London’s recent resurgence is the product of converging forces: improved political stability, deregulation, favorable currency trends, and a pivot in investor psychology. Its relative calm and undemanding valuations present a compelling alternative to overheated U.S. and European markets. Whether this momentum will hold steady remains to be seen, but for now, the FTSE appears to be shaking off its “unloved” reputation and stepping into the limelight once more.