The UK’s household savings ratio, which is savings as a proportion of income, has reached a record high in 2020. According to the latest data from the Office of National Statistics (ONS), the number reached 16.3% in the year, up from 6.8% in 2019. As an investor in UK shares, this suggests possible avenues to explore.
The sharp bump-up in household savings ratio came in a year when overall income was not really rising. It was because of all the time spent in lockdowns. With limited opportunities to spend, households have ended up saving more.
What do rising savings mean for my UK shares’ investments?
I think this has two implications for my investments in UK shares.
One, it convinces me more than ever before that a big increase in consumer expenditure could happen post-lockdown. In other words, an economic rebound is about to get real.
Two, increased savings means potentially higher investments in stocks, bonds, and property.
Focus on select reopening stocks
To gain from the rising consumer expenditure, I would focus on reopening stocks that can see improvements as people step out. These include high street retailers, pubs and restaurants, cinemas, hotels, travel and tourism stocks.
But I would be careful in the choices I make. Many of these stocks have been hit hard. Because of this, not all of them will come back fast or see sustainable share price increases. Others will, however.
I think stocks of companies with a significant market size can be gainers. The UK’s largest coach operator National Express is one of them. Cineworld, the second largest cinema chain in the world, is another.
These stocks are not without their problems. But their strong positions can still help. In the case of National Express, opportunities to expand have come about in 2020. And Cineworld has been able to raise funding from lenders more than once.
Investment services providers gain
The second impact of rising household savings, on investments, will impact financial markets-related stocks as well as real estate ones.
The FTSE 100 investment services provider Hargreaves Lansdown is an example of a financial services stock that has been positively impacted. The UK’s biggest retail investment platform has recently said that because of high trading volumes in the past year, it now expects that profits for the year ending 30 June will be higher than analysts’ expectations.
Similarly the FTSE 100 alternative asset manager Intermediate Capital Group, can continue its rising trend from 2020.
Real estate stocks can gain too. FTSE 100 property stocks like Taylor Wimpey and Persimmon have already benefited from policy relaxations. Now rising savings can bolster them too.
I do have one concern about finance and property stocks though. These markets are heating up, especially property, fuelled by liquidity and supportive government policies. These may be unsustainable as the policy support is withdrawn over time and the economy is still floundering.
Yet, I am optimistic, going by the projections for growth. I’d buy today.