Until very recently, it looked like 2020 would end on a high note, leaving behind the exhausting roller coaster of a year. But it turns out, the ride may not be over yet. I’m hoping that it doesn’t happen, but I think the odds of another 2020 stock market crash just rose.
Why might another stock market crash happen?
I see two big risks to the UK stock markets:
#1. The new strain of coronavirus: In Health Secretary Matt Hancock’s words, it’s “getting out of control”. Christmas plans have been upset for many across the UK. The vaccine may or may not be effective against the new strain, which further complicates the situation. If it turns out not to be, or even if the results remain inconclusive, investors could start losing their nerve.
If a stock market crash happens because of this, I reckon it could be worse than the last one. The UK’s really the only country to have reported the mutated coronavirus as far as I can tell. So other stock markets will look like better options to it in comparison.
#2. Brexit: We are fast approaching the Brexit deadline. So far, there’s no deal visible. Contradictory news reports are consistently available on the subject, making it impossible to figure out if there’s progress in talks or lack of it.
What we do know for now is that the UK’s ports are getting clogged, partly in preparation. Christmas demand has only added to the flurry of trade activity. If there’s no Brexit deal, I think far more confusion can be expected. This includes heightened stock market uncertainty that can result in a market crash.
Can I invest in a stock market crash?
As always, though, another stock market crash will be an opportunity for investors who can hold their nerve. The FTSE 100 index has risen more than 30% since the crash in March. I reckon another one will have a similar result.
There’s no complex reasoning behind this. The fact is that many large FTSE companies are resilient. Some of them, like Imperial Brands, have their beginnings dating back to the late 19th century. Others, like Unilever, have been around since the Great Depression. I doubt they will suddenly go under now.
This is even more so because many of them have widely spread out international interests. Burberry, for instance, is seeing rising demand in China, one of its biggest markets already. HSBC, too has well developed Asian operations.
Where would I invest?
It follows that I’d buy FTSE 100 stocks of companies that are financially healthy and geographically diversified. Among the ones mentioned, I like Unilever and Burberry. With IMB and HSBC, I think there are important structural changes afoot and I will wait and see how they play out. But there are plenty of other FTSE 100 stocks I’d consider as well in case of another stock market crash.