1 reason why I’d buy the FTSE 100 after the recent stock market crash

The FTSE 100 (INDEXFTSE:UKX) could offer an appealing risk/return opportunity.

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.

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.

The definition of a bear market is a decline of 20% from an index’s high. Following a number of months of decline, last week the FTSE 100 dropped around 14% lower than the peak level it reached in May. While still short of being a bear market, the index has nevertheless experienced a hugely challenging period which may not yet be at an end.

Despite the risk of further falls, the long-term prospects for the index continue to be relatively appealing. That’s especially the case as the UK experiences its most significant economic and political change in a generation. Although Brexit may seem to be a risk facing the index, it could prove to be a positive catalyst on its future performance.

Brexit uncertainty

Since 25% of the FTSE 100’s income is derived from within the UK, the potential for disruption caused by Brexit could cause a number of its incumbents to experience a period of difficulty. At the time of writing, it seems improbable that the Brexit process will be a smooth ride between now and the end of March 2019. There seems to be a wide range of dissenting voices in Parliament, and this could scupper the prospect of the current Brexit deal coming into effect.

Even if it does pass smoothly through Parliament, Brexit represents a significant change for the UK from an economic and political perspective. It essentially undoes decades of gradual progress towards a political and economic union within Europe, and could have a significant impact on a wide range of industries. As such, investors may naturally price in possible risks. While they may not come to fruition and Brexit could even prove to be a good thing for the economy in the long run, the uncertainty it’s causing may lead to falling valuations for UK-focused shares.

International potential

While a quarter of the FTSE 100’s income is generated from within the UK, 75% of it is derived from abroad. This means that the FTSE 100 is much more dependent on the outlook for the world economy, rather than the domestic economy. Internationally, the economic outlook is relatively upbeat. Although there are risks from a rising US interest rate and potential trade tariffs, the general consensus is that growth could continue to be high across a number of major economies beyond 2018.

Additionally, a weak UK economy may lead to further declines for sterling after a tough couple of years. This may cause a boost to earnings for FTSE 100 shares which report in pounds but operate mostly abroad. This could even mean that a tough outlook for the UK economy creates more favourable conditions for the FTSE 100, since it’s an internationally-focused index. For this reason, and the uncertainty which is being caused by Brexit, the FTSE 100 could offer investment appeal after its recent slump.

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.

Peter Stephens 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »