There are a lot of potential opportunities for investors in 2021. The most obvious one is the still relatively easy availability of cheap UK shares.
The risks to UK shares
But there are plenty of risks too. Here are 10 I can think of for a start:
1. Coronavirus variants: The pandemic appears far from over as the coronavirus mutates. Will the vaccines developed continue to be effective? We don’t know.
2. Reach of vaccines: Scepticism about vaccine effectiveness, or, worse, suspicions about their motives, may cause delays in a process that will take time any way.
3. Brexit delays: Despite the free-trade agreement between the UK and EU, increased paperwork has created delays in getting goods to the EU. If continued, there’s no saying how much business will slow down.
4. Currency crash can impact UK shares: I think the British pound is relatively more vulnerable after Brexit. If it shows ongoing weakness against the euro and other major currencies, inflation could rise. That wouldn’t be good news at a time of slow growth.
5. Policy support withdrawal: Fiscal support will be withdrawn at some point, which could result in a real economic slump.
6. China slumps again: In 2020, a big lift for the world, and indeed for FTSE 100 shares, came from China’s economic bounce back. But new coronavirus cases have erupted there, indicating the need to be vigilant, still.
7. Continued global slowdown: Forecasts for the economy offer hope, but they can be subject to change. This could be so if the corona-crisis continues or if the underlying damage to the economy turns our far greater than we can assess now.
8. Geo-political stressors come back: Before the coronavirus took centre-stage in 2020, the US and Iran were at loggerheads. The price of oil spiked, which if continued could’ve had implications for UK shares, especially big oil. We can’t rule out the possibility of similar stressors showing up again.
9. Corporate insolvency for UK shares: With finances decimated, many companies’ debts are running up. If Covid-19 continues longer than expected, I reckon we will see more insolvencies over time, including among big UK shares.
10. Stock market crash, 2021: These risks in turn could result in another stock market crash. Even without them, the markets themselves have run-up sharply since November, creating the risk of an overheating in UK shares’ prices.
How I’d invest now
So, should I abandon stock investing for now?
It’s entirely possible that some of these risks don’t play out at all. But I think it’s still worthwhile to know about them. If I have them in mind, I can buy stocks that can serve me well even in tough times.
I think there are two ways to think of such stocks:
- Longevity: These are companies with a history of survival. Unilever, for example, has been around since the Great Depression. So has multi-commodity miner Anglo American. I think this means they are more likely to survive another crash, if it occurs.
- Essentials: Healthcare is the perfect example of a sector where demand is relatively inflexible irrespective of the state of the economy. AstraZeneca and Hikma Pharmaceuticals are UK examples.
I believe these kinds of shares can benefit my portfolio over time, irrespective of the risks that exist in the near term.
