We’ve been here before – last time a year ago, when Boris Johnson came to power – to be disappointed.
But in recent days, some respected investment experts are once again starting to make positive noises in the UK stock market.
They believe it could rise sharply in the coming months thanks to a wall of money from international investors who previously wouldn’t hit the market with a proverbial barge pole.
It’s not hard to see why. Hopes for a vaccine breakthrough to fight the Covid-19 disease are drawing ever closer thanks to promising clinical trials by pharmaceutical companies Pfizer and Moderna – and positive results from the latest research on the Oxford vaccine produced by the drug giant AstraZeneca.
Once the vaccines become widely available, they should pave the way for the UK economy to return to some form of normalcy.
There is also an end to Brexit in sight. “An early deployment of the vaccine could revive many depressed fortunes in the UK stock market,” said Richard Hunter, head of markets at wealth manager Interactive Investor.
“A favorable Brexit outcome would improve overall sentiment of the UK as an investment destination.”
Earlier this month, investment bank Goldman Sachs said the FTSE 100 – the index of major London-listed companies – could end next year above 7,200, the level at which it s collapsed in March as the lockdown blocked the economy.
On Friday, he finished at 6.351.
Yet this forecast seems tame compared to others. Tony Yarrow, founder of Wise Investment, based in Oxfordshire and co-manager of two multi-asset funds, estimates that the FTSE 100 could reach 8,500 by the end of 2021 and is convinced that the market recovery that has started earlier this month could last from 12 to 18 years. month.
“Maybe the men in the white coats will take me,” he said. “But when the recovery in the UK economy comes, it will be extreme and the impact on the stock market will be extremely positive.”
This is a view shared by Brian Dennehy, Managing Director of FundExpert. He argues that the FTSE 100 could hit 9,400, although there are some ups and downs along the way.
Not wanting to put the moment when the market could reach this level, Dennehy nevertheless asserts that “the United Kingdom is very under-invested by global institutions and has not been cheaper than the rest of the world since 1973”.
He adds: ‘With Brexit soon to be eliminated in any form, global investors will be refocusing on the enormous value stored in the UK stock market. This means that the market advance could happen very quickly.
Experts believe end of Brexit means more people will be interested in the UK stock market
Another ‘bull’ in the UK market is Jason Hollands, director of wealth manager Tilney. He says Britain’s economy faces huge challenges – rising unemployment, foreclosure restrictions and ailing public finances.
But he believes that the recent revaluation of UK stocks indicates that investors around the world are starting to look past the challenges here and now – “ and instead look across the valley with growing confidence that better times lie ahead when life begins to return. normality’.
Despite the recent market rally, the FTSE 100 is still 16% below its level at the start of the year. For comparison, the S & P500 index in the United States rose about 10 percent.
The FTSE’s underperformance is a reflection of its miniscule exposure to technology stocks and its over-reliance on economically sensitive companies such as those involved in oil and gas, basic resources and the service sector. financial – all of which have been hit hard by the pandemic.
Experts say any sign of an economic recovery in the UK or a return to economic normality will cause the prices of these stocks to rise sharply.
Where commentators disagree is on how best for investors to capture any future rally in the UK stock market.
Ketan Patel, fund manager at EdenTree Investment Management, says investors looking to buy individual stocks should exercise caution.
He thinks the market is littered with so-called “value traps” – companies whose stocks look insanely cheap, but are in the doldrums for a reason.
In many cases, Patel says it’s the result of a far-reaching structural change in their industries.
Despite the recent market rebound, the FTSE 100 is still 16% below its start-of-year level
A change that will continue to hamper some of the better-known names in the stock market such as M&S (hampered by its huge portfolio of stores), BT and Vodafone (both compromised by their costly commitment to new 5G technology).
Companies, he says, where there has been “massive destruction of shareholder value.”
Patel believes investors should focus on “quality” companies that have a “reasonable price” – many of which are in healthcare and industry.
In the health arena, he suggests AstraZeneca, GlaxoSmithKline, and medical analysis company Relx. In the industrial sector, the polymer manufacturer Victrex and the filtration system specialist Porvair.
Jeremy Thomas, head of global equities at Sarasin & Partners, an investment manager, also rates Relx – a company he describes as an “80-20” company.
A country in which 80% of its business activities (those related to medicine) have remained robust throughout the pandemic, while 20% (its exposures) have suffered.
In other words, the positives outweigh the negatives. It’s also a definition he uses to describe DS Smith, a packaging company that has benefited from the boom in e-commerce.
Tony Yarrow loves insurer Legal & General, which continues to generate strong earnings and pays shareholders an attractive dividend.
He is baffled that his share price is around £ 2.59 when his financial figures suggest it should be around £ 4.
He also likes construction giant Morgan Sindall – “a very good company” whose share price is expected to be “closer to £ 25 than the current £ 13.90”.
For those who prefer to access the UK stock market through an investment fund, Dennehy says it is essential to target funds where the underlying holdings will benefit from the expected economic recovery around the corner.
Among its recommendations are Schroder Recovery, JOHCM UK Equity Income and ASI UK Unconstrained. “Stacks of value and opportunity in all three areas,” he adds.
Hollands argues in the same direction. He says investors who have made substantial profits on paper from growth-oriented funds like Scottish Mortgage should now “ balance the ticket ” with funds betting on Britain’s economic recovery.
Favorites include Fidelity Special Situations and Jupiter UK Special Situations.
… AND A MORE CAREFUL VIEW
Not everyone thinks the UK stock market is guaranteed to perform well in the months to come.
Russ Mold, chief investment officer at AJ Bell, a wealth manager, says it’s easy to justify that he offers decent value, but he has a caveat.
He believes that British stocks will not be the ideal place if “a vaccine is late or if the logistics prove difficult, the virus persists and the world economy goes into a double dip recession”.
He urges investors to build “downside protection” into their portfolios by exposing themselves to defensive utility companies – such as Severn Trent – and to both gold and silver.
Precious metals can be accessed through funds such as iShares Physical Gold (which tracks the price of gold) and VanEck Vectors Gold Miners which tracks the performance of a basket of metals mining stocks.
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