(Bloomberg) -- The manager of a £1.6 billion ($2 billion) UK fund that’s beaten the majority of peers in 2024 is predicting a big revival for British stocks — no matter the outcome of the country’s election.

James Lowen, co-manager of the JOHCM UK Equity Income Fund, said the nation’s improving economy and an easing of political uncertainty could lift depressed UK valuations after years in the doldrums. He estimates his large cap investments offer around 50% to 100% upside on a 12 to 24 month view, while some of the small caps could rally as much as 150%.

“The early election is a positive as it gets it out of the way, accelerates us off the period of ‘limbo’ we were in,” Lowen said. “Clarity on UK politics will also help the overall UK stock market in the eyes of global investors.”

The veteran manager’s hunt for bargains has proven fruitful among UK financials, which he says offer low valuations. He owns names including Barclays Plc, NatWest Group Plc and Standard Chartered Plc, as well as insurer Aviva Plc, saying that clarity on capital allocation has improved across the sector while management teams have been streamlining businesses.

“These things are so undervalued that, just because they go up 10%, doesn’t mean it’s right to sell them,” Lowen said in a recent telephone interview. The rally across banking stocks and a resurgence in deal-making have been the primary drivers of his fund’s outperformance, helping it beat 86% of peers this year, according to data compiled by Bloomberg.

Lowen’s optimism contrasts with many strategists, who on average see the FTSE 100 index ending this year about 4% below current levels. UK stocks have lagged behind continental peers amid political instability following the 2016 Brexit referendum. The market chaos unleashed by former Prime Minister Liz Truss’s mini budget in September 2022 only served to exacerbate this underperformance, and the nation is set to go to the polls once again in July.

Yet things have been looking up. Britain’s economy is bouncing back and the stock market’s heavier weighting in cheaper, more value-oriented sectors has been a boon. The FTSE 100 is up 5.9% in 2024, closing in on the Euro Stoxx 50 Index’s 8.7% gain. Market watchers are turning more positive, too, with HSBC Holdings Plc strategists recently upgrading UK equities to overweight, saying it’s time to boost exposure to the region, and Schroders Plc also raising its view on British stocks. Meanwhile, London has snatched back the crown from Paris as Europe’s biggest stock market amid political upheaval in France.

The UK stock market has seen a wave of merger and acquisition activity given its cheapness, with the MSCI UK Index trading at a discount of around 40% to the MSCI World Index. So far, 2024 has seen $37 billion worth of public M&A deals targeting UK companies, both pending and completed, about 68% above last year’s figure, according to data compiled by Bloomberg.

Having taken money out of bid situations like Hipgnosis Songs Fund Ltd., which is set to be sold to Blackstone Inc., Lowen and his colleague Clive Beagles have recently added Centrica Plc and Morgan Advanced Materials Plc.

--With assistance from Alexandra Muller and Michael Msika.

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