Many UK shares continue to trade at low prices after the 2020 stock market crash. For example, the FTSE 100 is trading around 10% down on its level from a year ago. Even after its recent rally that’s seen it rise by 30% since its low from March 2020. This suggests there may well be scope to buy high-quality companies at low prices.
Meanwhile, low interest rates and a continued loose monetary policy could have a positive impact on the stock market. This could potentially lead to a long-term stock market recovery following the current challenges faced by a wide range of industries across the FTSE 350.
Low valuations among UK shares
Even after the recent stock market rally, many UK shares now appear to offer good value for money. This doesn’t mean they’ll always rise in price in future. But it could provide scope for greater capital returns versus buying fairly valued or overvalued stocks. After all, the stock market has always fully recovered from each of its previous downturns.
Therefore, taking a long-term view on today’s share prices could allow an investor to capitalise on low valuations within the stock market. This may mean there’s scope to achieve a higher return than the wider market has managed in the past.
That’s because history shows us that buying while the stock market is at a low ebb can be profitable. In the coming years, a likely rise in valuations could have a more positive impact on today’s undervalued shares versus their index peers.
Monetary policy stimulus
Recent monetary policy stimulus could also have a positive impact on UK shares. Although this isn’t guaranteed, policymaker action may help to catalyse the performance of the wider economy. This may result in improved operating conditions for a wide range of businesses that helps them to merit higher valuations when being analysed by investors.
Certainly, there are likely to be a number of challenges ahead despite the existence of a loose monetary policy. However, over the long run, UK shares could provide relatively high returns that have a positive impact on an equity portfolio.
Potential threats to growth
As mentioned, many UK shares are facing tough operating environments at the present time. This situation may persist over the coming months. Certainly since coronavirus remains an ongoing threat to growth. This may lead to disappointing returns from equities versus other assets.
However, through buying UK stocks while they trade at low valuations and holding them for the long run, it may be possible to earn relatively high returns. They may be helped by policymakers taking action that helps to boost the financial performance of a wide range of companies. As well as helping improve investor sentiment in the coming years.
