Demand for UK shares has picked up considerably as hope that the Covid-19 battle can be won is rising. The FTSE 100 has leapt to fresh multi-month highs while the FTSE 250 has just soared to its highest level in history.
Despite these rises, I strongly believe that now is a great time to buy UK shares. This is because many top-quality companies remain much, much cheaper today than they were before the 2020 stock market crash. This allows sharp-sighted share investors a chance to nip in and grab some bargains. I myself have bought some cut-price UK shares for my own Stocks and Shares ISA following last year’s crash.
Exercising caution with FTSE 250 shares
Of course the coast isn’t completely clear for UK share investors. The threat of vaccine-resistant Covid-19 variants still casts a cloud over the economic recovery. Prime minister Boris Johnson continues to warn that a ‘third wave’ of coronavirus infections in Britain could happen. This would be particularly dangerous for the FTSE 250 given the index’s larger quota of UK-focused companies versus the FTSE 100.
The threat of a long road back from the pandemic means that share pickers need to be extremely careful before buying UK shares. Firms with debt-laden balance sheets could be too big a risk in the current climate. I’d think carefully before buying certain cyclical shares too, given the risk of a prolonged economic downturn.
But as a long-term investor I don’t plan to stop buying UK shares entirely. Why would I? History shows us that those brave enough to keep buying shares in uncertain times have a chance to make a fortune during the eventual economic rebound.
A recipe for success?
Remember that the FTSE 100 more than doubled in value from the lows it hit following the 2008 financial crisis to the record peaks it struck less than a decade later. And of course, the FTSE 250 more or less trebled in value over the same period. Improving economic conditions allowed corporate profits to bounce back strongly and market confidence subsequently improved.
The bull market of the last decade allowed hundreds (perhaps even thousands) of Stocks and Shares ISA investors to become stock market millionaires. They bought in at the bottom of the market in the late 2000s and watched their portfolios swell in value. I think it might be a stretch for most of us to expect to become millionaires with UK shares in the new bull market. It often requires a lot of cash to be invested and plenty of hard work to be undertaken.
But I still think that today’s share investors can expect to make a decent pot of cash over the next 10 years. Covid-19 means that a strong economic recovery in 2021 is hard to predict. But I feel certain that the new bull market is coming. Global stock markets have always recovered strongly from social, economic and political crises. And I fully expect the FTSE 250 (and other UK share indices) to rise strongly this time around too.