Even if you weren’t paying attention, you couldn’t have missed what an unpredictable year 2019 has been for markets both in the UK and globally. Today I’d like to take a closer look at how the FTSE 100 and FTSE 250 have fared and discuss several shares I’ll be watching in 2020.
What happened in 2019
The UK has a healthy economy. However, Brexit has dominated our lives for over three years and left that economy with many question marks. The final weeks of the year also saw general election uncertainty.
Many sectors of the economy, as well as companies including banks, homebuilders, car manufacturers and retailers, have been understandably affected by ebbs and flows in investor sentiment.
In addition to a Brexit-induced economic slowdown, investors have been concerned about US-China trade wars, slowing growth in China and emerging markets, interest rates, oil and gold prices, and the value of the pound.
And domestically, we have witnessed the collapse of debt-laden Thomas Cook and the downfall of money manager Neil Woodford.
FTSE 100 and FTSE 250
London has always sat at the centre of international financial markets and attracted robust companies to list there. Eventually, the dust settles in the equity markets, and strong shares shine. And that is what has happened in 2019 too.
Year-to-date (YTD) the FTSE 100 and FTSE 250 indices are up about 15% and 23% respectively. In mid-December, the FTSE 250 also hit an all-time of 21,935.33.
In addition, average dividend yields for the FTSE 100 and the FTSE 250 have been about 4.5% and 2.8% respectively.
Thus in hindsight, a combination of growth and dividend income would have made either index an ideal portfolio choice.
While past performance may not exactly repeat in the months ahead, the track records of both indices highlight their growth potential.
Themes for the New Year
In 2020, I expect risk appetite to pick up amid hopes of progress on a post-Brexit trade deal with the European Union as well as a trade war truce between the US and China. However, if trade frictions resurface, then they could likely weigh on growth and rattle equity markets.
Most central banks are likely to remain supportive and maintain the current era of low interest rates – a factor that would bode well for equity markets.
Mergers and acquisitions may continue in the UK as several mid-cap companies may be subject to fresh overseas interest.
On a global note, 2020 is the year of the US presidential election. Therefore global markets are likely to get choppy as election day draws closer in November.
Shares I’ll be watching in 2020
Currently there are several companies I’d consider buying, especially if there is any weakness in their share prices in the coming weeks. In the FTSE 100, they include:
- Barratt Developments, YTD up 63.8% – dividend yield of 3.9%, forward P/E 10.2
- Carnival, YTD down 5.4% – dividend yield of 4.0%, forward P/E 11.4
- HSBC Holdings, YTD down 7.2% – dividend yield of 6.5%, forward P/E 11.1
- Lloyds Banking Group, YTD up 20.2% – dividend yield of 5.2%, forward P/E 8.7
- Royal Dutch Shell, YTD up 3.4% – dividend yield of 6.4%, forward P/E 12.9
In the FTSE 250, they include:
- Bunzl, YTD down 13.8% – dividend yield of 2.5%, forward P/E 16.1
- G4S, YTD up 8.6% – dividend yield of 4.5%, forward P/E 11.6
- Inchcape, YTD up 25.7% – dividend yield of 3.8%, forward P/E 11.7
- Marks and Spencer Group, YTD down 7.3% – dividend yield of 4.9%, forward P/E 11.8
- Paypoint, YTD up 23.8% – dividend yield of 4.7%, forward P/E 15.4
It just remains for me to wish you a happy and prosperous 2020!
