I don’t want to put a dampener on 2022 just as it’s begun. But I feel that UK share investors like me need to take extra care if they want to make a decent near-term return, if any return at all.
The risks to the global economy and, by extension, to corporate profits, are significant. As Nigel Green, chief executive of investment firm deVere Group, said: “Headwinds — the factors that weigh down growth and positive returns -– are likely to outnumber the tailwinds in 2022 as the world continues to readjust to the post-pandemic era.”
The main risks facing shareholders in 2022
Green outlines the three main risks facing the economic recovery in 2022, dangers which I agree pose the biggest threat to shareholder returns. These are:
#1: A prolonged Covid-19 crisis
The Omicron variant is causing coronavirus cases to soar and uncertainty remains over its full economic impact. It has the potential to prompt more lockdown restrictions and to worsen the supply chain crunch.
#2: Rocketing inflation
Prices are rising at their fastest rate for many years in parts of the globe, putting consumer spending power under extreme pressure. Surging inflation is also encouraging central banks to hike interest rates which is, in turn, raising the cost of borrowing.
#3: China’s cooling economy
The world’s second-biggest economy is slowing rapidly and the real estate sector is in big trouble. A failure of a property giant like Evergrande could have major global consequences.
3 UK shares I’d buy for 2022
It’s fair to say that all UK shares will be affected by the issues above in some way or another in 2022. However, this doesn’t mean British stocks won’t be able to deliver decent near-term returns. With a little research it’s possible to dig out companies that could still thrive in the new year.
Take PZ Cussons, for example. The household goods manufacturer could suffer as inflationary pressure pushes up costs and hits consumer spending. But I’m confident the brand appeal of products like Imperial Leather soaps will keep volumes ticking over nicely and allow it to pass on these increased costs effectively. Furthermore, sales of its soaps and hygiene products may remain buoyant as long as the pandemic lasts.
I’m also confident the essential nature of power network operator National Grid’s services will help it deliver decent shareholder returns in 2022. That’s even though rising interest rates to limit runaway inflation would push up its debt costs.
Another share I’m thinking of buying for next year is Vistry Group. The coronavirus crisis could hit its home production targets if its building sites close down again. Homebuyer demand might also be hit if the Bank of England were to raise interest rates. But I still think it could perform strongly next year as Britain’s massive housing shortage keeps demand for new properties bubbling nicely.
Looking on the bright side
These are just three top UK shares I’d be happy to buy for my own portfolio for 2022. And there are a great many others I believe could deliver terrific returns this year. That’s why I plan to continue investing in British stocks.