I think there’s a good chance that the rumbling Brexit saga might be keeping share prices depressed on the London stock market. It’s been said many times, but businesses and investors hate nothing more than uncertainty.
The uncertainty over Britain’s economic relationship with Europe looks set to continue for a while but, eventually, we’ll all know the rules of the new game and will be able to concentrate on playing well again. Indeed, normal service will return to the UK’s businesses, to the stock market, and to politics. And we’ll all probably end up wondering what all the fuss was about.
The economy is holding up well The UK economy has been holding up well since the vote to leave the European Union, as several ongoing economic indicators reveal. I remember around the time of the vote, well-known fund manager Neil Woodford commissioned an in-depth research report where several economic experts examined the likely economic effects of the UK leaving or remaining in the EU. Their conclusion was that whether the UK left or remained, the effects on the economy would be broadly neutral. In other words, the environment for businesses and shares would be stable whatever happened. As we march on through the Brexit process, the predictions in the report seem to be playing out.
So, if you accept that economically Brexit will be something of a non-event, it makes sense to look at shares right now while they languish at low levels. Indeed, research website Stockopedia.com has it that the median forecast price-to-earnings ratio of all shares on the London stock market with estimates is as low as just over 11. The median forecast dividend yield of all dividend payers is more than 4%, and the medium forecast earnings growth of all shares with estimates is as high as 10.4%.
Businesses are trading well Those indicators suggest to me that, in aggregate, the businesses behind the listed shares are trading well. Yet the stock market is letting us buy shares at prices that assign attractive valuations to the underlying enterprises. Shares are on sale, and I say let’s load up while we can and make our investment money go further than it does in the enthusiasm of a raging bull market. Indeed, when the bull is in full gallop, valuations typically elevate and we end up with a smaller stake in the underlying companies behind the shares.
To get involved, you could go for individual share picking. Or, if you are short of time to research and manage your portfolio, you could effectively outsource the process by going for a directed share-picking service such as those offered by The Motley Fool. Another way is to invest in a managed fund, such as those offered by well-known managers such as Neil Woodford, Mark Slater, and many others. Or, you could go down the route of investing in passive, low-cost index tracker funds such as one that follows the FTSE 100 or the FTSE 250 here in the UK, which I believe to be an attractive option for many. We could be seeing a golden opportunity to invest in the stock market, and I plan to take advantage of it.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
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