The UK stock market has enjoyed blistering gains in 2025, and is on course for its best year since 2013. Up 18% since 1 January, the FTSE 100‘s strode to new peaks just below 10,000 points. The FTSE 250 has risen a healthy 8%.
UK shares have easily outperformed their peers in other developed markets, including the US. And yet London-listed companies still look dirt cheap on the whole.
Alex Wright, portfolio manager at Fidelity, notes that “UK equities still trade at a meaningful discount to global peers“. Could that discount be the catalyst for another powerful rally in 2026?
Time to shine (again)?
Though noting that UK shares enter 2026, “from a position of strength“, Wright commented that London-listed shares still trade at a healthy discount “both on outright price to earnings multiples and after adjusting for structural sector differences, such as the heavy weighting of technology in US indices“.
Interestingly, Wright added that many of the domestic stock market’s value opportunities can be found “further down the market cap spectrum“.
Accordingly, he said that “our strategies maintain a structural bias towards these smaller and mid-sized businesses, as these businesses are typically less well known to investors and often receive limited and artificial coverage” by brokers.
So is now the time to consider focusing on small- and mid-caps?
Value hero
I personally think a blend of FTSE 100 and other UK shares is a good way to balance risk and potential reward. But let’s look at some of those lessen-known heroes and consider why they could outperform in 2026.
Pan African Resources (LSE:PAF) has risen 211% this year, driven by a robust gold price and strong operational performances. Yet it still looks dirt cheap on paper, trading on a price-to-earnings (P/E) ratio of 7.8 times.
A stalling or falling bullion price could naturally have an adverse impact on the miner’s price next year. But I’m confident gold prices should keep climbing as interest rates drop, and macroeconomic and geopolitical uncertainty persist.
JP Morgan predicts the yellow metal will reach $5,055 an ounce by this time next year — up from $4,330 currently — before marching to $5,400 at the end of 2027.
Pan African’s supercharging production to capitalise on this environment, too. It’s targeting full-year output of 275,0000-292,000 ounces next year, up from 197,000 ounces in 2025.
More cheap stocks
Topps Tiles — which has risen 20% year to date — also looks cheap, with a forward P/E ratio of 10.4. Competition is intense across its markets, but with interest rates falling and mortgage lenders slashing loan costs, sales volumes could surge as the housing market improves.
I also like Lion Finance, which carries a forward P/E of 6.9. I think 2026 could mark another year of strong progress as — despite rising political risks — Georgia’s booming economy continues to turbocharge loan growth.
The emerging market bank’s almost doubled in value this year.
