Investors got so excited by the news of a Covid vaccine on Monday that the apps and websites of many of the well-known platforms seemed to collapse under the strain. On that day, the FTSE 100 rose by 4.5%. Could this week’s market rally lead to improved confidence in UK shares?
I think so. That’s why I’m very confident now – as I was before a vaccine announcement – in buying UK shares. Those that I see as undervalued, can provide a growing dividend income, or can deliver greater growth than the market expects, I feel.
The benefits of buying shares right now
One of the big benefits of buying UK shares right now is that they’re undervalued. Even after this week’s rally, listed UK shares are still far cheaper than US shares. However, if you look a couple of months ahead, we could well have greater certainty on Brexit, more positive updates on Covid and a recovering economy.
The market is so cheap now, all it needs is some optimism, I feel. Monday’s stock market madness (and I mean that as a positive), was testament to that. The risk versus reward at the moment is so skewed towards reward – given how cheap UK shares are – that I think it’s a great time to be buying in to quality UK companies.
That’s especially the case for investors like myself looking to create both income and growth from investments. There are plenty of UK companies still paying out through the pandemic, or which are set to reintroduce dividends. I’m also seeing lots of value shares in the FTSE and AIM markets that could bounce back strongly in the coming months and then keep growing for many years.
Which UK shares could do best in the coming months?
The big question I have, on the assumption that UK shares should do well in the coming months, is where will the biggest gains come from? If I look back, tech did very well during lockdown, but not well on Monday. The shares in the sector are expensive, generally speaking, so the room for major growth on the back of positive news is far more limited.
I strongly believe the biggest gains – if the market recovers – will come from some of the hardest hit sectors. Travel, leisure and finance could see big share prices rises. This is why I’ll potentially add to my Legal & General and Lloyds Banking Group holdings.
The trick, I think, is to avoid sectors that were struggling pre-covid. For this reason, I’ll avoid high street retailers and tobacco companies. The structural issues those industries face haven’t gone away and in the case of the former, have been worsened by Covid.
It’s not entirely clear yet if a rally in share prices can be sustained. However, given how cheap some UK shares are right now, I’m looking to pick up bargains to add to my portfolio for the long term, rather than to sell anything. I think now is a great time to be a UK investor.
The post Why I’m confident buying UK shares right now appeared first on The Motley Fool UK.
Andy Ross owns shares in Legal & General and Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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 2020