Broad stock market weakness today is evident in the FTSE 250 index too. But I am not worried. Rather, I think it might be a buying opportunity.
Here is why.
Why stock markets are weak
The latest weakness is at least in part caused by recent data about the US economy. The jobs report last week was weak and the latest inflation numbers have gone through the roof.
As any investor knows, when the US sneezes, the world catches a cold. And this time is no different. After the US markets closed weak yesterday, FTSE opened weak today.
And not just because of a bearish mood. Many FTSE 100 companies are globalised. This means that high US inflation has an actual impact on both their costs in the US and in the country as a market.
Why the FTSE 250 index is in a sweet spot
On the other hand, the FTSE 250 index adds in a lot of UK-focussed companies. While inflation in the US is an indicator of potential future trends in the UK’s inflation too, so far that number is relatively contained.
To put it another way, inflation is less of a concern for the UK right now. As a side note, I do not think we should rule out the possibility that it could become a big risk going forward.
But coming back to the main point, the prospects for the UK economy are looking great too. The Bank of England recently forecast that it will grow at 7.2% in 2021, the fastest rate since the Second World War.
The combination of controlled inflation and high growth is golden in my view. It remains to be seen if the UK will be able to sustain it, but for now I am hopeful.
FTSE 250 stocks I’d buy
Also, in this scenario, the pool of investable stocks can increase as there is growth across sectors. But there are some FTSE 250 stocks that could be in a particularly favourable position, even considering the likelihood of high inflation down the line.
One of them is the wealth manager Brewin Dolphin, which is up today despite the FTSE 250 weakness. This is explained by its robust half-year results. For the six months ending 31 March 2021, its pre-tax profits are up a huge 44% compared to the corresponding half year in 2020.
Barring explosive wage growth in the UK, I think it is likely to be largely insulated from any inflationary pressures. Also, household savings in the country have risen sharply in the lockdown, which bodes well. With growth prospects strong, I reckon personal investments will rise too, keeping wealth managers in demand.
Another option is self-storage facilities provider Safestore Holdings, which too is up today after its trading update. The company, which operates in the UK and continental Europe, showed a robust rise in revenue. It also has a strong pipeline of new facilities. It also has a positive outlook.
I am on the lookout for more companies like these for my portfolio.
The post Why I’d buy FTSE 250 stocks now appeared first on The Motley Fool UK.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021