Can UK stocks continue to outperform Wall Street stocks?

After maintaining a strong performance in 2025, London-listed stocks continued to outperform the US until 2026, but cracks are beginning to appear as the Iran war drags on.

of FTSE100 The index, which collects the shares of Britain’s most valuable listed companies, is up about 5.3% so far this year, outperforming all three Wall Street averages and building momentum for 2025.

In 2025, the FTSE 100 index rose 21.5%, outperforming all three New York indexes.

Ninety One’s head of value, Alessandro DiCorrado, told CNBC in an email on Wednesday that the UK index offers an “amazing” range of opportunities, from “HALO” sectors such as energy, mining, utilities and industrials (seen as more resilient to disruption) to asset-light software and data businesses.

Russ Mould, investment director at AJ Bell, agreed that there are several aspects of the UK market that work in its favor, many of which have been “arguments against, or at least underweight, investing in the UK market over the past decade”.

“Just under a fifth of the market capitalization (and earnings and dividends)[of the FTSE All-Share Index]comes from mining and oil companies,” he said in an email, noting that another fifth of the index is made up of health care and consumer staples companies, giving it “a lot of defence.”

“As such, with oil prices remaining high, gold prices holding firm and some industrial metals hitting new highs, the UK is a good hedge against current geopolitical risks and concerns about supply chain and raw material availability.”

Another thing that attracts investors to the UK market, Mold says, is the favorable cash returns offered by constituent companies, which combine ordinary dividends, special dividends, share buybacks and even takeover payments.

He said: “The total amount of cash returned to investors through these mechanisms is around £180bn in 2025, and with analyst forecasts for dividends, share buyback announcements and live acquisitions, that total already amounts to around £130bn, or 4.6% of market capitalization (in 2026).” “As a cash yield, it is above the Bank of England benchmark rate and the inflation rate, and is well below the 10-year government bond yield.”

“The UK has long been unloved and underperformed, so it could offer better value than the US, which has long been hailed as the only option and has outperformed as a result.”

However, the London market continues to face long-standing problems that make it unpopular in a market environment that is not well suited to its defensive characteristics. These include a shallow depth of local capital compared to the US, an exodus of companies dissatisfied with the lackluster share price momentum, a small number of listed companies, and high listing costs.

Last year was something of a comeback for London’s stock market, which benefited from trends in geographic and sector diversification even as unpredictable White House policies rocked global markets.

Over the past decade, the London benchmark index has outperformed the London benchmark index. S&P500, Nasdaq Composite and Dow Jones Industrial Average Only 3 times a year. Although US indexes rebounded in 2020 immediately after the coronavirus pandemic, the FTSE 100 index ended the year in negative territory, and the political turmoil surrounding the UK’s exit from the EU also dealt a blow to international confidence in the UK as an investment destination.

The US index has also outperformed London’s FTSE 100 since the Iran war began in late February, a change Mattioli Woods fund manager Jonathan Merchant described as “astounding”.

“This is probably due to the unique nature of the conflict, where the United States is better protected from energy shocks because it has large supplies domestically,” he said, adding that the U.S. performance was also supported by a strong dollar.

Inflation in the UK jumped to 3.3% in March as fuel prices soared after the Iran war, according to data released this week. The UK is a net energy importer, sourcing around 40% of its fuel from overseas, making it more vulnerable to fluctuations in global energy markets than the US, which is a net energy exporter. Oil and gas prices have soared since the Iran war began, thanks to the destruction and closure of energy infrastructure and the virtual closure of the vital Strait of Hormuz.

Britain also faces domestic political and economic problems. But market players appear unperturbed by the mounting pressure on the UK economy.

NinetyOne’s DiCorrado said that despite the economic and political turmoil gripping the UK, the UK market “represents a more nuanced picture than the domestic context suggests”.

He added that the majority of companies listed in London are headquartered outside the UK or have global operations, with as much as 75% of the FTSE 100’s revenue coming from overseas.

“While the consumer sector remains under pressure from high energy costs and rising mortgage rates, the stock market itself is very international, with many companies earning most of their revenue overseas,” he told CNBC.

Mr Merchant said the UK was also benefiting from a backdrop of attractive valuations. What happens next may depend on whether U.S. President Donald Trump can reach a deal with Iran to end the war, he said.

“If the conflict is short-lived, there could be renewed interest in markets outside the US, including the UK,” he said.

Toni Meadows, investment director at UK-based BRI Wealth Management, told CNBC that global investors are missing out on opportunities in the London market.

“In Shakespeare’s words, ‘the truth will come out,’ but in market terms, truth is always valued based on value for money,” he said.

“Global investors can, and have, for the most part, completely ignored the UK market, but that means they are blind to the value and valuation opportunities of UK-listed companies and at some point will change their estimates of ‘value disappearing’.”

However, Meadows said years of US technology dominance had reduced the relative importance of the UK stock market, and if this trend resumed it could mean the UK’s outperformance would be short-lived.

“Last year was the first in many years when the UK actually outperformed the US, driven by a return to interest in older sectors and the diversification of global and US investors, but this was led by the FTSE 100 rather than domestic indexes,” he said.

“For the UK to continue to outperform, investors will need to seek value in mid-cap and below-cap companies, but even if there is value, it doesn’t seem like that is happening sustainably at the moment.”