Gervais Williams serves as the Chair of Equities at Premier Miton.

The era of globalization saw political parties often aligning on policies, but the rise of nationalism has led to a noticeable divergence in political agendas.

Rachel Reeves’ recent budget proposal exemplifies this shift, opting for another round of tax increases where others might have taken a different route.

Gervais Williams is chair of equities at Premier Miton

However, the ongoing discussions about these budgetary plans might be missing a crucial point. Across Europe, many governments are grappling with the challenge of balancing their budgets.

Previous financial forecasts have consistently been too optimistic, and without economic growth, maintaining fiscal balance becomes increasingly difficult each year.

In Belgium, the budget’s impact has sparked a general strike, indicating a significant structural change. I anticipate that this will also lead to fundamental shifts in global stock market trends.

During globalisation, stock market returns were strong – persistently year after year. Decade after decade. Open borders led to labour supply being plentiful. Hence, manpower costs didn’t rise as much as company sales, So, over the decades, corporate profit margins have doubled.

Yup that’s not a misprint. Corporate profits have been buoyant for decades. Even zombie companies – those companies that earn just enough money to continue operating and service debt interest but are unable to pay off their debts – were able to survive. Global stock market returns have been quite extraordinary.

Despite growing wealth inequality, governments appreciated some aspects of globalisation. Tax revenues rose, and like corporates, they became somewhat addicted to near-unlimited low-cost debt. 

The mainstream UK stock market mainly comprises companies that generate surplus cash – putting them in a good place to outperform in downturn 

Costs are rising and profits are under pressure  

But following Covid, they’ve struggled to balance their budgets. Growth has stalled along with tax revenues.

One-off government projects, like HS2, are keeping up some momentum for now until interest rates come down. And so far, they’ve been lucky on capital expenditure (capex). 

Extra government project spend has coincided with a massive surge in data centre capital expenditure. Globally, we’ve all swerved a major slowdown. The US stock market is still going up.

But new data centres can’t open any faster. And immigration restrictions are starting to bite. Manpower costs are edging up. The tax grabs are adding to corporate costs. Whisper it – there’s a new trend starting – global profit margins are coming under pressure. They’re coming down.

At present, profits are often maintained via staff redundancies. For example, globally, UPS is cutting 48,000 jobs, Novo Nordisk 9,000, Nestle 16,000…Unfortunately, come the next downturn, unemployment could surge.

Unemployment benefit is likely to crowd out all other government expenditure. Most government departments could suffer involuntarily cuts. Unfortunately, I fear the next recession will be a bit of stinker.

Generating surplus cash in a downturn   

During Covid we saved more because we were locked down, as the chart below illustrates. But now we all sense the status quo has become unsustainable. We’re saving more for precautionary reasons. We’re all becoming more guarded.

Britons are saving more for precautionary reasons

The same thing is happening within global stock markets. The headlines may be dominated by the growth of Nvidia and Amazon, but in share price terms, it’s many of the slower growth companies, generating surplus cash, that are outperforming.

During downturns, the key point is that companies generating surplus cash can have disproportionate advantages. 

1.  When profit margins decline, they can be more resilient.
2.  When overstretched corporates retrench, cash generative companies can expand into the vacated markets. The tougher it gets, the greater their growth potential.
3. And if numerous corporates do fail, companies generating surplus cash can buy them – often for just £1. Overborrowed but otherwise viable companies can be bought debt-free from the receiver. Since so few can take on the working capital demands, they often change hands for near nothing. Remember HSBC buying Silicon Valley Bank UK for £1 in 2023? During globalisation, profits boomed. And an immense portfolio bias built up within the largest (‘mega-cap’) US technology companies. Currently, US company specific and industry sector risks are at nose-bleed altitudes. With nationalism however, I believe that slower moving companies that are generating surplus cash may have disproportionate advantages. It is hard to understate the scale of the current watershed.

The mainstream UK stock market mainly comprises companies that generate surplus cash. So far this year (to 25 Nov 2025), despite all the political and economic fuss, it’s the UK stock market (as measured by the FTSE 100 Index) that’s outperforming. 

Yes, that will surprise some, the UK stock market is currently outperforming the large US technology companies (measured by the Bloomberg Magnificent 7 index).

Importantly, UK stock market outperformance isn’t being driven by the UK economy. Rather it’s related to the nature of its make-up. The characteristics of the UK stock market greatly contrast with the US.

Don’t get distracted by the Chancellor’s second tax grab

Savings nationalism  

Ultimately, nationalism won’t just be limited to immigration controls and trade tariffs. In time, we’ll become nationalist about our collective savings too. By bringing our savings home, this will help to boost our local companies. 

They’ll enhance the creation of local skilled employment and productivity. Expect politicians to start using slogans like ‘UK savings for UK jobs’.

So don’t get distracted by the second tax grab. The Chancellor hopes markets won’t notice the elephant in the room. Government spend exceeds our collective rate of saving. 

During globalisation we could get away with it. With nationalism, at some point the fact that its unsustainable will become obvious.

It’s not a party-political thing. Unfortunately, persistent government overspend has real consequences. When the road runs out, it ends in corporate insolvencies and extra unemployment. 

But there is good news too. Companies generating surplus cash have the potential to outperform. In my view, the UK stock market is primed for a new supercycle.

Better still, the UK market should return to its core purpose. Not just in terms of generating premium returns versus international comparatives, but also, for non-savers as well. 

Boosting the creation of skilled employment, driving productivity improvement, so successful companies can pay wage rises above inflation. And with many being local, extra tax take for the Exchequer when they succeed.

Overall, when the UK stock market works well again, our collective savings, used locally, can enhance the wellbeing of the whole electorate. That’s something we can all get behind.

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