UK stocks: Is low domestic buying a structural problem now?

Goldman Sachs flagged that UK equities remain significantly “under‑loved” and under‑owned, noting a sizable valuation gap versus US markets that points to weak domestic demand.

According to the bank’s client note, the UK market trades at roughly a 40% sector‑neutral discount to the US and is cheaper than many European peers. The trend reflects a long decline in domestic ownership by pension and insurance funds, which has left home demand at historically low levels, while corporate buybacks surged to record levels in 2025.

Market implications are material: thin domestic demand has reduced liquidity and helped sustain a valuation discount, but it has also attracted foreign buyers and private equity seeking bargains. Commentators including Bloomberg argue the sector presents a contrarian trade—high dividend yields and buybacks provide a potential floor even as structural questions persist.

Broader drivers include the FTSE’s heavy weighting in traditional sectors rather than high‑growth technology names, past tax and regulatory shifts that changed institutional incentives, and comparatively low retail participation. Policy debates have touched on reforms such as stamp duty relief and measures to encourage pension funds and savers back into UK equities.

Analysts say a rapid rerating is unlikely without meaningful change in domestic flows; instead, near‑term support may come from ongoing buybacks and inbound M&A. A sustained recovery would probably require policy action and a shift in institutional and retail allocations. For investors, the market presents an income/value opportunity but with clear structural risks until domestic ownership trends reverse.