It’s not a surprise that UK share markets have reversed course in recent days. The FTSE 100 and FTSE 250 have basically lost all the gains they enjoyed during a sprightly start to 2021.
There’s a glut of reasons why UK share investors have got a lot gloomier over the eagerly-anticipated economic rebound. These include:
- The emergence of Covid-19 variants that have caused infection rates to spike and lockdowns to return. Concerns that these new strains could be resistant to vaccines from the likes of Pfizer and AstraZeneca have fanned speculation over a long and widescale pandemic, too. Vaccine rollout problems in Europe have also tested investor nerves in recent weeks.
- Signs that trade tensions are ratcheting up between major nations. It had been suggested that a new White House administration would soothe the frosty rhetoric between the US and other trade partners, especially China. Joe Biden’s decision to reimpose new aluminium import duties on metal shipped from the UAE has dampened these hopes.
- Disruptions to UK-EU trade following the end of the Brexit transition period. Trade flows across the English Channel have taken a significant hit due to paperwork issues and higher costs. Many of these problems look set to stay as per December’s trade agreement, too, not just for much of 2021 but possibly indefinitely.
Why I’m continuing to buy UK shares!
As I say, it’s hardly a shock that investor confidence has taken a smack. But I have no plans to stop building my own UK share portfolio because of the issues I’ve described above.
I clearly need to be extremely careful as the stress on corporate profits and balance sheets persists. The stream of dividend cuts and cancellations in 2020 sum up the huge pressure UK shares are feeling during the pandemic. Many investors could suffer the problem of poor returns for some time yet. Perhaps even another stock market crash could be around the corner.
But as someone who takes the time to properly research UK shares before piling in, I don’t feel that I should be afraid to splash the cash in 2021. There are plenty of defensive stocks out there, after all, for me to choose from. Companies like medicine maker GlaxoSmithKline and water supplier Severn Trent, for instance. Food producer Premier Foods and alcohol manufacturer Diageo as well. These sorts of stocks remain reliable profits generators during economic upturns and downturns.
However, I don’t feel that I have to only go defensive. My decision to buy UK shares in my Stocks and Shares ISA with e-commerce exposure, like packaging maker DS Smith and distribution specialist Clipper Logistics, is already paying off and should continue doing so. Other stocks like those involved in cloud computing, green energy and video games are great buys in my opinion too. They offer the chance for me to make huge returns whether or not the broader global economy remains depressed for a long time.