The Zhitong Finance App learned that after a few failed starts, there is still room for the UK stock market to continue to rebound.

In dollar terms, the FTSE 100 index has risen about 5% over the past month, more than double the increase of the European Stoxx 50 index and the US S&P 500 index, but there is little sign that this upward trend is about to subside.

Energy companies and mining companies hold huge shares in the UK's benchmark stock index, and rising commodity prices and massive share buybacks have helped drive up these companies' share prices. The weaker pound made Britain's exports more competitive, while the economy rebounded from the recession.

Goldman Sachs Group strategist Sharon Bell said, “We think the FTSE 100 has more room to rise.” They said stock prices in all industries in the UK have higher-than-normal discounts compared to their US peers, while commodity companies and banks have announced “unusual” dividends and repurchases.

For a market that has been underperforming for a long time, this may herald a change in fortune.

Oil giants Shell and British Petroleum plan to buy back shares totaling more than $5 billion. HSBC Holdings and Standard Chartered Bank also recently announced repurchase plans.

In addition to this, a series of mergers and acquisitions and the Bank of England's more moderate remarks have boosted investors' interest in smaller, UK-based stocks.

According to data compiled by Bloomberg, mergers and acquisitions of UK-listed stocks were active this year, with acquisitions amounting to US$101.3 billion. This represents approximately 65% of total European M&A activity.

Despite this, the market is sending out some warning signs. According to the Relative Strength Index, the FTSE 100 is at the worst overbought level since May 2018. The same is true of the FTSE 350, and the FTSE 250 is rapidly approaching this level.

The following five charts show the current state of the UK stock market:

The UK stock market has outperformed Europe and the US in the past month

The UK stock market has been labeled cheap for a long time, but this discount has recently narrowed, in part due to stronger commodity prices and the US dollar. Predictions that US interest rates will remain high for a longer period of time are also beneficial to so-called value stocks.

Analysts expect the profit growth of FTSE 250 index constituents to be stronger than FTSE 100 constituent stocks

This optimism doesn't just exist in big companies. Analysts expect that as the economy recovers, the profit growth of the smaller constituent stocks of the FTSE 250 index will be better than that of FTSE 100.

Economic data supports domestic stocks in the UK

According to data released last week, the UK's gross domestic product (GDP) grew by 0.6% in the first quarter, higher than the 0.4% forecast by economists. This is good news for stocks facing the UK market. Meanwhile, the purchasing managers' index survey shows that the UK economy continues to expand.

FTSE 250 is likely to perform well as the Bank of England starts cutting interest rates

In recent years, as the UK economy fluctuates, more attention has been paid to the poor performance of the FTSE 250 index in the UK domestic market. However, Bank of England Governor Andrew Bailey (Andrew Bailey) hinted that the market is underestimating the pace of easing in the next few months. As domestic spending in the UK rebounds, interest rate cuts may push mid-cap stocks to reap new gains.

UK stocks are at their worst overbought level in 6 years

However, there are signs that the increase in the UK stock market may be too high. The FTSE 350 is at its worst overbought level in 6 years, and the FTSE 250 is also close to this level.