It’s difficult to tell what 2024 might bring for UK shares. A recession seems to be imminent, but there’s a chance this could cause the Bank of England to start bringing interest rates down to stimulate the economy.
The situation is undeniably complicated and I think it depends to a large extent on what happens in the US. But there are some stocks on my radar that could really stand to benefit from a cut in interest rates.
Barclays
In general, rising interest rates have been a mixed blessing for the UK banking sector. But I think Barclays (LSE:BARC) stands to benefit more than most if rates come down in 2024.
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Across the board, banks have been facing increased risks of borrowers defaulting on their loans as interest rates have risen. But Barclays also has an investment banking division, which has been severely handicapped.
A drop in interest rates should therefore be a double boost for the company. As well as helping with bad debts, it should boost investment banking activity.
Lower rates might lead to lower margins, which is a risk for investors buying the stock today. But I think its diversified operations make this less of a danger for Barclays than its peers.
The PRS REIT
Another stock that I’ve been looking at for a while is The PRS REIT (LSE:PRSR). The company is a real estate investment trust (REIT) that focuses on new houses.
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Like a lot of REITs, PRS has quite a substantial amount of debt, which is a significant risk. When that comes due, the company might find itself faced with the prospect of having to pay more interest going forward.
A drop in interest rates would be very helpful in this regard, though. It would also go some way towards pushing up the market value of the company’s asset portfolio.
This past year has been a strange one in the housing market — a decline in demand has been partially offset by a corresponding drop in supply. As a result, house prices haven’t fallen by as much as I was expecting them to.
Nonetheless, I think the PRS REIT is a company that could really benefit from the Bank of England starting to cut interest rates. If that happens in 2024, I would expect the company’s share price to react positively.
2024 winners
As Warren Buffett says, interest rates is the gravity that hold down asset prices. So a cut in rates in 2024 should benefit stocks across the board, at least to some extent.
Despite this, I think some stand to benefit more than others. And the companies catching my eye fall into one of two categories.
First, there are those that stand to benefit from higher asset prices in their business operations. This is the case with Barclays in its investment banking division.
Second, there are those that have existing debts that would have to have been refinanced at higher rates. This is typical of REITs across the board, including the PRS REIT.
