February 24, 2024
Challenges, opportunities and the way forward


Are good days coming? (London Stock Exchange)

getty

In the unpredictable world of the stock markets, success often lies in your ability to outperform the market by paying attention to rising trends that go against the normal flow of trading, ensuring that your portfolio thrives when the market rises. And do not suffer excessive losses during recession. This theory has proven true, especially for investors trying to turn profits despite the stagnant market performance of the UK FTSE 100 over the past 25 years.

FTSE pause

For a quarter of a century, the FTSE has shown little progress, leaving investors considering their strategies. Despite this, proponents of value and paradox have managed to navigate these turbulent waters with relative success, especially if they are able to dodge the bullet in the periodic crashes that reset the FTSE 100. However, recent times have presented a challenge for investors finding it almost impossible to make a comeback.

Fortunately, a ray of hope has emerged. Value portfolios have started to demonstrate resilience, outperforming the market during rallies and avoiding significant losses during market declines. This positive development is partly attributed to the changing market dynamics, driven by factors such as declining inflation, anticipated lower interest rates and the imminent injection of liquidity into the market to finance the government deficit, which however is still low. Has not happened, is likely to happen primarily through old-school quantitative easing (QE).

One issue troubling the UK stock market is its perceived weakness. It has been criticized as “broken”, a sentiment shared by many industry insiders. However, there is hope that this sentiment may change as the urgent need for action is understood and understood, as well as the long-term prospects that the global economy is improving.

If this does not change, the likelihood of a takeover frenzy of core blue chip listed stocks as they are taken over by private equity and stripped of assets is increasing. While this scenario may be worrying for some, it will be a payday for value investors, with no one blaming them for risking becoming victims of the mishandling of one of the UK’s main economic structures. Will be able to stay.

To truly understand the value hidden in the market, one must account for inflation. When adjusting the FTSE for inflation, the results are nothing short of staggering. The FTSE’s current adjusted level is around 4,000, reflecting its position during the worst days of the dotcom crash. The revelation underlines the depth of despair in the UK market, with industry leaders commenting on the unprecedented challenges they face.

FTSE 100 adjusted for inflation

Clem Chambers

However, even in adversity there is opportunity. For those looking for it, this could be a buying opportunity like no other.

Although the overall market outlook may seem bleak, income investors can still find reasons for optimism. Despite market headwinds, the dividend yield remains extremely attractive, providing mouth-watering returns. With expectations of a decline in inflation and falling interest rates, income investors may find a strong inflow of dividends as well as capital appreciation.

The future of interest rates is a topic of keen interest to investors. Will they become zero? Possibly not given the UK’s substantial need to issue gilts to finance its growing deficit. The Bank of England is unlikely to absorb this, which is expected to keep interest rates high enough to attract suitable third-party investors. Nevertheless, quantitative easing in any guise will play an important role in absorbing additional debt, thereby enhancing liquidity in general.

This combination of factors could lead to a scenario of moderate inflation, interest rates around 3% and new capital flowing into equities while supporting housing prices. Additionally, a recovery looking likely to last for 2-4 years is likely to provide a way out of economic stagnation.

A wave of acquisitions on the cards. I’ve predicted this for months but now it finally seems to be happening. Right now it seems the focus on M&A is on low-risk, friendly deals, as you would expect at the beginning of a new trend. It will take time and success to make the scene more energetic, but with such a hunger for potentially lucrative profits and activity in the system, it will come.

Companies paying substantial dividends are attractive targets for acquisitions. As a result, acquisitions are expected to increase with a surge in 2024. Investors with these acquisition targets will see strong returns.

After years of bearish sentiments, the future looks clear. Market flexibility, hidden value, income opportunities and the changing economic landscape indicate better days ahead for investors in the UK stock market. However, it is essential to remain alert and adaptable in these dynamic financial markets as there will be little room for comfort in a market that remains fragile.

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I am the CEO of Online Blockchain. I am a prolific financial writer; I wrote a stock column for Wired – in which I was described as a ‘market maven’ – and I am a regular columnist for several financial publications around the world. I have written for the titles: Working Money, Active Trader, SFO and Technical Analysis of Stocks and Commodities in the US and have written for almost every UK national newspaper. In 2018, I won Journalist of the Year in the Business Market Commentary category at the State Street UK Institutional Press Awards. Over the past few years I have become a financial thriller author and have written a best-selling how-to-invest book: 101 Ways to Pick Stock Market Winners. Find me here on US Amazon. You may have also seen me giving my views on the markets on CNBC, CNN, Sky, Business News Network, BBC and Al Jazeera.

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Source: www.forbes.com



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