Societe Generale (Paris: FR0000130809 - news) 's equity derivatives strategists back buying bullish "call" options on Britain's benchmark FTSE 100 index, saying the UK stock market has room to outperform given the prospects of a recovery in the mining sector which counts for around 9 percent of the market.
"This sector has been hit by the emerging market downturn since May 2013 and is now amongst the three cheapest sectors based on historical valuations. We therefore think there is some upside, particularly given that some China statistics appear supportive," writes the SocGen team in a research note.
The FTSE is up by around 0.8 percent since the start of 2014, underperforming a 1.5 percent rise on the broader pan-European FTSEurofirst 300 index, but SocGen says this underperformance should soon end.
The SocGen derivatives team back buying a FTSE "call" options due to expire in March with strike prices of 6,750 and 6,900 points - betting on the FTSE potentially rising up to the 6,900 point level over the coming month up from its current level of around 6,800 points.
Verizon's takeover of Verizon Wireless, the third-biggest deal in corporate history, tees up an $84 billion payout in cash and shares at the end of February, which many may look to reinvest in UK stocks.
"Finally, the Vodafone/Verizon deal could be a catalyst for a technical outperformance over the next days/weeks," adds the SocGen team.
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