Tezcan Gecgil, PhD
Today, we”ll take a look at shares listed in the UK. If you’re looking for additions to your retirement portfolio, then I think London Stock Exchange (LSE)-listed shares could be a good place to start. Broader markets, including the two main indices in the UK, i.e., the FTSE 100 and FTSE 250 indices, have rallied strongly after the crash back in March. Since early spring, they are both up around 20%.
However, many economists agree that the global economy is still in poor shape. News of a potential second wave of Covid-19 regularly hits the headlines. A large number of people worldwide are looking for jobs, and firms are operating at reduced capacity. Thus the markets markets may not be able to ignore further headwinds in the coming weeks. Should investors take off their rose-coloured glasses now?
Is another sell-off possible?
I believe, there will almost certainly be another market decline in 2020 or 2021, the lates. But it would be almost impossible to know the exact date when FTSE shares or any other world stock index may take a beating again.
The rapid recovery of stock markets worldwide and FTSE shares, even without the development of a vaccine, has been confusing for many investors. But if there is a delay in the discovery, development, and mass production of a vaccine, it is likely that stocks will retreat in the autumn.
There have been several expensive Covid-19 stimulus packages to date introduced by world economies. They are likely to bloat budget deficits and cause inflation. Furthermore, high unemployment rates need to be taken into account in the months ahead. According to the Institute for Employment Studies (IES) “unemployment [in the UK] has already risen to at least 2.5m, or from 3.9% to around 7.5% of the workforce.“
Earlier this month, the Office for National Statistics (ONS) officially declared the UK economy in recession. It marked the first time since the 2008-09 financial crisis that the UK economy had fallen into a year-long recession.
The numbers released by the ONS for monthly growth in the services, production and construction industries show that Britain’s second-quarter contraction was extremely steep. June numbers showed a rebound, but the economy may not be out of the woods yet.
Then since 2018, there is an ongoing dispute between the world’s two largest economies, the US and China either. Finally, there’s also the upcoming US election in early November, which should bring further choppiness to the markets.
Potential opportunities in FTSE
Whenever markets decline considerably in a matter of weeks, many investors wonder if they should sell and turn their paper losses into real losses. Each portfolio is unique and different investors have different risk/return profiles.
However, history tells us that markets tend to recover from losses, only to make new highs. Yet timing the market is extremely difficult, especially for the average investor. Therefore, even if there is another decline soon, I believe FTSE investors should stay calm and focus on their long-term financial goals.
With due diligence, investors can also find robust FTSE shares that may be appropriate for many portfolios. And retail investors have been flocking into the markets in recent weeks.
Here are several companies I would consider buying, especially if there is any further weakness in their share prices soon. In the FTSE 100, they include AstraZeneca, British American Tobacco, Diageo, GSK, Flutter Entertainments, and Smith & Nephew.
In the FTSE 250, I like Dechra Pharmaceuticals, Greencoat UK Wind, Softcat and Tate & Lyle as potential long-term investments.
Takeaway on FTSE shares
A large number of FTSE shares have largely been unattached to the main street economics lately. Yet in the coming weeks FTSE stocks could easily retreat. In the short run, I’m expecting continued volatility in stock markets.
Making the right decisions in investing is not necessarily about constantly picking winning shares and funds. Rather it is about having a long-term strategy. So if you are unsure where to begin, a low-cost FTSE 100 or FTSE 250 tracker fund might also be appropriate.
Personally, I’m determined not to get caught up in any short-term selling in September, nor for the rest of the year.