4 reasons why I think UK shares will soar in 2025!

As 2024 draws to a close, our writer explains why he’s optimistic that UK shares, including the FTSE 100, will do well over the next 12 months.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UK shares, as measured by the FTSE All-Share Index, have had a solid — if unspectacular — 2024. Since the start of the year, the index — which captures 98% of the UK’s market capitalisation — has increased by 7.5%, beating its five-year annual average of 5.7%.

Admittedly, other markets have performed better. For example, the S&P 500 – boosted by the Magnificent 7 — has rocketed nearly 27% this year. But ironically, I think the lack of reliance on technology stocks is one of four reasons why the FTSE will do well in 2025.

1. Back in fashion

US equities are now valued at an eye-watering 2.08 times gross domestic product (UK: 1.08).

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

According to IG, the cyclically adjusted price-to-earnings ratio (CAPE) for American stocks is currently 31.1 (UK: 18.6).

But only 1% of the movement in the FTSE All-Share Index is accounted for by tech stocks. As valuations in the sector become increasingly stretched, this could help ‘old-fashioned’ energy, mining, and banking shares that dominate, in particular, the FTSE 100.

One such stock is Lloyds Banking Group (LSE:LLOY).

It’s one of the highest-yielding on the index. In respect of its 2024 financial year, the bank looks likely to pay a dividend of 3.18p a share. This means the stock’s presently yielding 5.8%, comfortably above the Footsie average of 3.8%.

Dividends are never guaranteed. But based on the bank’s results for the first nine months of 2024, I think its payout looks reasonably secure for now. Revenue, post-tax earnings, and the return on tangible equity were all higher than analysts were expecting.

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL15 Dec 201919 Feb 2025Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '25202020202021202120222022202320232024202420252025www.fool.co.uk

However, the ongoing investigation into the possible mis-selling of motor car finance is weighing on the bank’s shares at the moment.

In my view, even if the most pessimistic of predictions comes true, Lloyds will be largely unaffected. At 30 September 2024, its balance sheet contained over £900bn of assets, including £59bn of cash and cash equivalents.

But despite my optimism, investors are twitchy and, therefore, I’m going to wait until the picture becomes clearer before deciding whether to invest or not. I’m also concerned that so-called ‘challenger banks’ could pose a threat.

2. Dividends galore

However, Lloyds is just one of many dividend stocks out there.

The FTSE All-Share Index has yielded 4% over the past 10 years, compared to 2% for the S&P 500. When share buybacks are taken into account, the cash yield for UK equities rises to 6%.

This should help lift the domestic market in 2025. And could explain why cash is returning.

3. Loads of money

Figures from Calastone show the first net inflow of funds into UK-focused equity funds since May 2021, when the global funds specialist started monitoring these things.

In my opinion, I think this provides strong evidence that investors believe the UK stock market currently trades at a discount to its peers.

Source: Calastone

4. Return to growth

Finally, I’m encouraged by the recent upgrade to the OECD’s 2025 growth forecast for the UK (from 1.2% to 1.7%).

And with the Governor of the Bank of England hinting at four interest rate cuts next year, consumer (and investor) sentiment should pick up. Higher disposable incomes should give people more cash to invest.

With most of my investment portfolio concentrated in UK equities, I hope others share my optimism for 2025!

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

With a 9.5% yield, could this FTSE 250 share be a dividend gold mine?

Christopher Ruane is eyeing a FTSE 250 with a dividend yield approaching double digits. Here's what he likes about it…

Read more »

Investing Articles

2 key reasons Nvidia stock could still soar from here

Even after the chipmaker's stunning performance in recent years, this writer sees reasons that could potentially help propel its share…

Read more »

Investing Articles

Here’s how £10k could set a stock market beginner on the path to riches in 2025!

Christopher Ruane sets out how taking a considered approach could mean even a stock market novice with £10k to invest…

Read more »

Investing Articles

The BAE share price struggles despite strong earnings and a 10% dividend increase. Is it still a buy to consider?

The BAE share price dipped 3% in early morning trading after posting its full-year 2024 results. Our writer considers if…

Read more »

Investing Articles

Could this Nvidia-backed growth stock be a millionaire-maker at $10?

This little-known artificial intelligence growth stock is backed by chipmaker Nvidia and recently jumped nearly 24% in a single day!

Read more »

US Stock

£10,000 invested in the S&P 500 the day before the presidential election is now worth…

Jon Smith explains how the S&P 500 has performed since last November and identifies a key winner in the months…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Should I consider buying Glencore as its share price slumps to multi-year lows?

FTSE 100 stock Glencore continues to see its share price slump. Now at its cheapest since September 2021, should I…

Read more »

Investing Articles

£5,000 invested in Lloyds shares 3 months ago is now worth…

Lloyds shares have done well over the past three months but all of the bank's FTSE 100 peers have done…

Read more »