The recent declines in global stock markets may cause investors to hold back on fresh investment in shares. The threat posed by coronavirus, as well as an uncertain outlook for the UK economy, may lead many investors to determine that holding cash and waiting for more stable conditions is a better idea than buying stocks.
However, there appears to be a number of appealing investment opportunities in the FTSE 100 and FTSE 250 at present. Buying high-quality shares while they trade on low valuations could be a worthwhile move for anyone with £1k, or any other amount, to invest right now.
Brexit uncertainty
Brexit may now have taken place, but investor sentiment towards UK-focused shares could continue to be unfavourable over the near term. The UK will now try to strike trade deals with the EU, US and various other countries during the course of 2020. Investors may determine this process won’t be straightforward, and could demand lower valuations for companies that have UK operations.
In many cases, the political and economic uncertainty facing the UK economy has already been factored in to companies with UK exposure. As such, sectors such as banking and retail appear to offer good value for money at the present time, with many of their members trading on lower valuations than their historic averages.
Furthermore, with the FTSE 250 having a dividend yield of 3% at present, mid-cap shares appear to offer good value for money. Since the FTSE 250 generates around half of its income from the UK, it could be cheap due to current investor caution towards the UK. This may mean it presents buying opportunities for long-term investors.
Global stocks
As well as investors adopting a cautious stance towards UK-focused companies, businesses with operations across the global economy also appear to be cheap. This may be due to the uncertain near-term outlook caused by coronavirus, while geopolitical risks in countries such as the US may also be weighing on investor sentiment.
Therefore, buying stocks in sectors such as global consumer goods and industrials could be a shrewd move. They are highly dependent on the world’s macroeconomic outlook in many cases, and their valuations may reflect the uncertainty investors are currently feeling regarding the global economy. This could provide investors with the opportunity to buy high-quality companies with growth potential at low prices.
Recovery prospects
Although UK-focused companies in banking and retail, as well as global consumer goods and industrials stocks, could face challenging near-term outlooks due to heightened risks, their long-term prospects appear to be bright.
For example, many UK banks and retailers are successfully adapting to technological change, while global consumer goods and industrials companies could benefit from rising wages across the emerging world.
While investing today may seem to be a risky move, it could produce strong total returns in the coming years.