Stock market crash: I’d buy UK shares now despite recent volatility

Despite recent volatility, I’d continue to buy UK shares, even if there is another stock market crash, writes Thomas Carr

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Despite being well into the Covid-19 crisis and hopefully past the worst of the subsequent stock market crash, the last month has shown that UK shares will continue to be volatile for the time being. The backdrop to these swings is a never-ending stream of news stories. Some of which are positive and others negative. With such a barrage of news stories, it’s hard to form an accurate view of what’s actually happening and what that means for UK shares.

UK shares volatile

The result of this uncertainty is that stock prices swing wildly. We saw this at the beginning of the crisis back in March. Recently, it looks like volatility has returned. Until there’s proof that an effective vaccine is imminent, I think we’re going to continue to see significant swings in stock prices.

It feels to me like there are more negative news stories lurking just around the corner. These have the potential to send UK share prices back to where they were in March and April. Another stock market crash could mean falls of up to 50% in some cases. But we should view this as an opportunity.

Sure enough, in time, there will be a solution to this crisis. We just don’t how long it’s going take and what the damage will be in the meantime. But when sentiment becomes more optimistic again, stock prices will rise. In the long run they could rise significantly. This would reward those investors that take the risk of buying UK shares amidst heightened uncertainty.

Opportunities abound

Bearing that in mind, I think there are, and will be, more great opportunities to be had for investors to pick up great companies at bargain prices. But we need to exercise caution. I think it’s prudent to stay away from the riskiest areas, such as tourism and real estate.

Instead, I’d focus on quality companies that have produced solidly profitable results during the crisis. Aviva, Prudential and Mondi have all recently announced very respectable results for the first half of the year, especially given the circumstances. Prudential’s pre-tax profit was just 3% lower than the same period last year. While Aviva managed to report net profits of almost £900m.

These are all high-quality companies, that will endure through the toughest of lockdowns. And they could even emerge from the crisis stronger than they were before.

Some companies have also recently reinstated hefty dividends. Direct Line and Mondi (again) have both not only returned to dividends for this financial year, but also declared catch-up dividends to compensate for those cancelled from the last financial year. Meanwhile, BAE Systems has reinstated its previously deferred dividend, giving a yield of around 5%.

In the current investment climate, those companies that can pay out juicy dividends will be highly sought after. They are some of the strongest companies in the UK. They also seem cheap, with their share prices still impacted by the wider market sentiment, which is why I think they are among the best UK shares right now. If there is another stock market crash, they could be cheaper still. I think these are exactly the kind of UK shares that we should be rushing to buy.

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.

Thomas owns shares of Aviva and BAE Systems. The Motley Fool UK has recommended Prudential. 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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