Many are mindful that the stock market rebound, was powered primarily by the co-ordinated government fiscal and monetary policies. That the index still contains too many companies that are feeling the effects of the COVID-19 disruptions.
After 2020 saw the FTSE 100 shed 14.3% of its value — its worst year since the 2008 financial crisis . An initially bright start to 2021 gave way to some pessimism.
The burning question for those wondering how to invest in 2021 is how much is left of this rebound? The market is slowly recovering, and several promising signs have laid the groundwork for a brighter year.
After years of uncertainty, Brexit has finally happened. Governments have rolled out vaccines without too many issues. And Joe Biden’s US stimulus package should have an overall positive effect.
What is the Sentiment Among Hedge Fund Managers and Banks?
Nick Nelson of UBS predicts the UK-EU trade deal will bring some stability to the market. Which he expects will close at around 7,200 points by year-end. While not fully recovered to pre-COVID levels, this climb would be a welcome sign for those investing.
While there are hints of cautious optimism for the FTSE 100. It’s hard to shake the feeling that 2021 will be a year that favours stockpickers.
While the majority were based overseas, Patel included two UK stocks in his list. The corporate foreign exchange specialist Alpha FX and Marshalls plc, a manufacturer of natural stone and landscaping products.
Analysts at the UK investment bank Peel Hunt released a list of 41 stocks they felt had potential this year. Many of their picks centre around industries that have suffered. Mostly due to coronavirus lockdowns, namely construction and the travel and leisure sectors.
This is a clear indication of their belief that the vaccine should power a market recovery throughout 2021. Resulting in business as usual.
Peel Hunts stock predictions last year yielded a 6% return against an FTSE All-share drop of 12%. Meaning their findings are worthwhile for anyone considering stocks to buy in 2021.
Which Sectors and Stocks Will Do Well in 2021?
With the UK construction output growing steadily last year, many analysts expect that despite predictions of a slight decline in house prices in 2021. The demand for homes will sustain this growth due to the end of the stamp duty holiday.
Balfour Beatty and Barrett Developments are both worth some attention for 2021. Balfour Beatty had a great 2021. With a price increase of 20% and with profits expected to grow by 94% this year. Their peak may be yet to come.
By contrast, Barratt Developments had a fairly miserable 2020. Which could leave room for recovery throughout 2021. Mainly because of the company’s healthy financial situation and position as the largest housebuilder in the country.
The housing market is relatively volatile at the moment. But, with Brexit uncertainty subsiding, it could be an exciting year for those looking to speculate.
Retail is looking interesting this year as further trends towards remote working increase home deliveries. With restaurants and bars still closed as the country awaits a full vaccine roll-out. Food delivery companies like Ocado have flourished.
Berenberg Bank, Peel Hunt, Bank of America, and Citigroup are all big on this stock for 2021. With price targets of between 2,430p and 2,900p. Pets at Home is another retailer that has been mostly unaffected by COVID.
A healthy 2020 has led to forecasts of more gains in 2021 as spending on pets increases among the public.
Lloyds had a solid end to 2020, as hope over an EU trade deal grew. Now that that deal has been secured. The housing market boost and a return to work due to a vaccine rollout should see the clearing bank recover some of the ground it lost since 2018.
HSBC had a pretty disastrous 2020, with prices falling by 37%. However, like Lloyds, the EU trade deal should see some sort of rebound, making it one to watch for 2021.
Additionally, a recent trading update suggested a shift “from interest-rate sensitive business lines towards fee-generating businesses. Further reducing our operating costs,” which is encouraging.
BP is another stock that has been slow to recover from significant losses in 2020. With oil prices on the rise throughout 2021, a rebound is expected.
Additionally, further investment in green energy in the private and public sectors should help the supermajor claw back some of its recent losses. BP’s green energy deal with Amazon and its $5b a year investment in renewable energy bode well for the future.
Its current share prices are down to levels that haven’t been seen since the mid-90s. Suggesting there is plenty of room to grow and recover to pre-COVID levels.
Is the FTSE 100 overvalued?
Investors’ classic aversion to political and regulatory uncertainty combined with a global recession led to a challenging 2020 for the FTSE 100.
While many companies in the 100 are still facing issues in 2021. Overall, the green shoots of recovery seen towards the end of 2020 should continue.
Brexit is out of the way, which should give investors some more clarity about the market. It will by no means be a comfortable ride, however. Business investment has stagnated in the years since the leave vote.
With more clarity — and an abundance of stimulus money sloshing around the market . There are signs that the UK could follow the US market and increase its share prices considerably.
Schroders has suggested that the UK stock market “looks cheap” compared to its peers. Noting some shares were trading at a 30% discount.
According to the Bank of America investor sentiment survey, recent years of underperformance have led to many investors being “light” on UK shares. With vaccine rollout and an EU deal, this could be about to change, leading the FTSE 100 to a bright 2021.
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Alpesh Patel OBE