The recent stock market recovery has left many UK investors feeling more optimistic about the prospects for their portfolios. That’s understandable, since the FTSE 100 and FTSE 250 have surged higher as positive vaccine news improved investor sentiment.
Despite this, there are still a number of cheap UK shares available to buy. While they may experience further challenges in the short run from economic and political risks, over the long run a stock market rally could lift share prices to even higher levels.
Buying opportunities for UK investors
While UK investors may have seen a number of UK shares rise in value, a wide range of buying opportunities may still exist. Many FTSE 100 and FTSE 250 shares continue to trade at prices significantly below their 2020 starting levels. This may mean they offer wide margins of safety that translate into high returns in the coming years.
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For example, UK shares such as BT, British Land and Imperial Brands trade at very low prices at the present time. Certainly, they face challenges in the short run from challenging operating environments. But their current valuations suggest they include a wide margin of safety that account for the risks they face. Furthermore, they appear to have sound strategies that could lead to share price growth in a long-term stock market rally.
The stock market recovery could stall
Although UK investors have seen their portfolio’s grow in size of late, the outlook for 2021 remains uncertain. As such, the recent stock market rally could stall. Investor sentiment may be negatively impacted by news on Brexit, coronavirus, or anything else that leads to a pullback after recent gains.
This is a normal occurrence during a long-term stock market recovery. For example, the rally that saw the FTSE 100 double in price after the global financial crisis was filled with high volatility and changing investor sentiment. As such, those investors who take a long-term view of their holdings, rather than worrying about short-term performance, could generate the highest returns in the coming years.
Recoveries after a stock market crash
The likelihood of the FTSE 100 and FTSE 250 surpassing their previous records is high. As such, UK investors may wish to retain a bullish stance on equities, despite the prospects of uncertainty in the near term. Both indexes have always been able to surge to new all-time highs even when the future remains uncertain. For example, the global financial crisis took some time to recover from in an economic perspective. However, stock markets responded positively to the potential for better economic performance.
Through buying a diverse range of UK shares now, an investor may benefit from a likely stock market rally. Certainly, it may not be a smooth road to recovery. However, today’s cheap shares are likely to deliver capital growth in the coming years.
