Investors pivot to UK shares as US faces continued instability

After years of political turbulence in Westminster and submit‑Brexit financial whiplash that drove capital away, the present US coverage chaos has propelled world buyers again to London, turning the UK into 2025’s unlikely protected haven.

“Certain buyers imagine the US is a a lot higher-risk funding prospect underneath Trump and so they’ve taken cash off the desk and reallocated to different elements of the world together with the UK,” in accordance with Dan Coatsworth, funding analyst at AJ Bell.

“This is a dramatic shift in thinking, given that the US has been a top place to make money for years.”

US President Donald Trump’s administration has spent most of 2025 imposing, scrapping and re-imposing tariffs on its largest buying and selling companions and allies.

“Political stability since last summer’s general election, along with the UK being the first to strike a trade agreement with the US under the Trump administration, have prompted certain overseas investors to think again about the UK’s situation and prospects,” Coatsworth continued.

The FTSE 100 Index broke the 9,000 valuation document in mid July, taking it 9 occasions above its baseline of 1,000.

The index’s earlier main milestone got here in February 2023, when it briefly pushed previous 8,000.

US greenback in freefall amid fights with the Fed

In May, Moody’s downgraded the United States’ credit standing from AAA to AA1, marking the primary time in over a century that the US not held a triple-A ranking from any main credit score company.

Last week, footage of Federal Reserve Chair Jerome Powell went viral as he stood subsequent to Trump throughout a go to to the Fed constructing, with the financial institution chief shaking his head in obvious disagreement.

Trump’s criticism of Powell — who’s arguably essentially the most highly effective guardian of the greenback’s worth — has aggravated the forex’s regular slide for the reason that new administration took workplace in January.

“Dollar weak spot can have spurred UK buyers to look nearer to dwelling for alternatives. A weaker greenback versus the pound makes US belongings much less enticing,” defined Coatsworth.

Although the buck has risen in latest days, the greenback index remains to be down virtually 9% within the 12 months so far.

Defence is a cash magnet

Trump’s departure from US overseas coverage norms, as an example by demanding that Europe pay extra for NATO whereas sending constructive alerts to Russia, has shocked leaders throughout the continent, undermining world safety.

Interest in authorities defence spending throughout the EU and the UK has risen at a document tempo for the reason that Cold War, with some governments quick‑monitoring multibillion‑euro offers for the procurement of missiles, drones and cybersecurity techniques.

This surroundings has made Europe’s defence contractors prime targets for contemporary capital as buyers search for belongings that may outpace geopolitical shockwaves.

Fresnillo, Babcock and Rolls-Royce, all both defence contractors or engaged on defence-adjacent initiatives, are the best-performing FTSE shares up to now in 2025.

“The UK inventory market has a wealth of defence contractors which have attracted investor curiosity towards a backdrop of elevated authorities spending on areas like cybersecurity and navy forces,” Coatsworth added.

A cut price for buyers?

“Valuation is one more reason the UK has functioned as a magnet for folks switching out of US markets,” mentioned Coatsworth, as FTSE shares are cheaper than US alternate options.

“American shares are costly if you take a look at fashionable valuation metrics. For instance, the S&P 500 index trades on 22.2 occasions subsequent 12 months’ earnings … In distinction, the FTSE 100 trades on a mere 12.6 occasions ahead earnings.”