The Covid-19 crisis has largely been a catastrophe for UK share prices in 2020. The FTSE 100 has taken an almighty walloping and, at 6,650 points as of right now, is down 12% from 1 January.
Hopes are rising though, that we could be on the cusp of a new bull market. With a no-deal Brexit catastrophe averted and a coronavirus vaccine breakthrough there’s huge optimism that the FTSE 100 could roar back and give us all some good news in 2021.
The experts at UBS are certainly expecting the FTSE 100 to rocket from current levels. They reckon Britain’s blue-chip share index to trade at around 7,200 points on 31 December, 2021. This is built on expectations that average annual earnings will rocket 21% next year and rise an extra 10% in 2022.
This leaves the FTSE 100 dealing on an undemanding forward price-to-earnings (P/E) ratio of 16 times. The UK share index carries an average 3.9% dividend yield too which, in my opinion, isn’t to be sniffed at.
FTSE 100 = top value!
UBS reckons the FTSE 100 offers terrific value for investors heading into the new year too. The bank notes that “the UK equity market has been one of the worst-performing major global markets since the Brexit referendum in June 2016,” and, as a consequence, “valuations for UK equities relative to Europe [are] close to 20-year lows.”
The FTSE 100 has also greatly underperformed other major global equity markets in recent months. It’s soared today following the recent passing of fresh stimulus measures in the US and by the thin Brexit deal. But its performance in recent weeks is still pretty tame compared to that of the Dow Jones. The US index has hit repeated highs and struck new peaks overnight. Japan’s Nikkei has also touched fresh 30-year peaks in recent hours.
2 cheap UK shares on my watchlist
I believe the FTSE 100 offers unmissable value at current levels. It was already looking undervalued prior to 2020. And the stock market crash of late February and early March leaves plenty of top UK shares trading at prices I consider too cheap to miss.
Take GlaxoSmithKline for example. The pharmaceuticals giant doesn’t just trade on a cheap P/E ratio of 12 times for 2021. It carries a monster 6% dividend yield too. Legal & General offers even better value. The life insurer trades on an earnings multiple of 10 times and carries a huge 7.3% dividend yield. The list of blue-chip bargains is huge.
Investors need to be careful before taking the plunge. Some FTSE 100 shares (like Lloyds) deserve to have slumped in value in 2020 as Covid-19 has significantly damaged their earnings opportunities.
Many UK shares also have high debt levels that they may struggle to service in 2021 and beyond. But experts like The Motley Fool can help you avoid these duds and make a lot of money next year and beyond.
