The worst might be over for UK shares — for now — but let’s not for even a single minute believe that it will be smooth sailing in 2021. I reckon there will be bumps and highs along the way. And I intend to make the most of both of them.
I see 10 big things that will impact UK share prices in 2021, which can be seen under four themes. These are detailed below, including how I’d invest according to each of them.
UK shares that avoid risks
#1. Brexit: This is the number one reason that the FTSE 100 index has underperformed in the past few years. And now it’s almost time for a wrap on the first chapter. Brexit deal or not, I’d buy a stock that’s defensive, even with a UK focus. My choice is the hygienist Rentokil Initial.
#2. Business closures: Coronavirus isn’t just a human tragedy, it has also shut down businesses. Retailer Debenhams is just one example. More could happen. But there are others that are doing well. Like JD Sports Fashion, which is on an acquisition spree. It’s one I’d buy instead.
Growing with the recovery
#3. US recovery: With the US economic recovery under way, I’d also buy a FTSE 100 stock that gains from an upswing in the world’s largest economy. One example is the construction company CRH, which gets much of its revenue from the US.
#4. China boom: If the US can recover, China will be booming by comparison. Metals demand is on the rise, and I’m buying the multi-commodity miner Rio Tinto.
#5. Emerging markets growth: Emerging markets, especially in Asia, are slated to grow as well, which makes me bullish on consumer goods biggie Unilever, with its strong focus on those countries.
Playing prices and policies
#6. Oil prices: With all the growth, oil prices will be back in business too. If I was investing for the next three years or so, I’d buy stocks like BP and Royal Dutch Shell, which have also paid great dividends historically.
#7. Interest rates: In this glorious mix, I reckon domestic interest rates will remain quite muted to stoke UK growth. With the price of loans low, credit uptake can increase, helping domestic banks like Lloyds Bank. I think it’s still risky, but the tide could turn.
#8. Policy push: Home builders have benefited hugely from supportive policies in 2020 like the stamp duty holiday. Even afterwards, some policy support for economic growth and an accommodative interest rate environment could help them thrive. I like Persimmon among the FTSE 100 ones.
Long-term investments in UK shares
#9. Corona catalysed: From a long-term perspective, there are clear winners like the FTSE 100 e-grocer Ocado, whose growth has been accelerated during the pandemic. I reckon it will continue to make gains because of this.
#10. Clean energy: Over the next decade, clean energy-related companies will win big. One of them, I reckon will be Johnson Matthey, which is building a plant in Poland to develop a chemical used in electric vehicle cells.