A stock market crash could be imminent. I’m still buying UK shares

One of the biggest fears for any investor is a stock market crash. But unfortunately, it is always a possibility, and right now there are many indications that one could be coming. But despite this, I’m continuing to buy UK shares. Here’s why.

A stock market crash?

There are several factors that may point to an imminent stock market crash. For example, the Bank of England governor, Andrew Bailey, has recently warned that the UK economic recovery is slowing. This is related to the current large number of coronavirus cases, which have caused supply chain disruption and staff shortages. The effect of these has been seen across the UK economy, especially severe in the automotive and hospitality industries. A declining UK economy is extremely bad news for the FTSE 100, which has fallen back to around 7,000 points in recent days.

Supply chain disruption and staff shortages have also caused inflationary pressure in recent months. This means that inflation is expected to rise to nearly 4% this year, the highest rate for a decade and far higher than the Bank of England’s 2% target rate. The consequences for the stock market may be severe. Indeed, these high levels of inflation could see the Bank of England raising interest rates next year. Higher interest rates are often a negative for stocks, especially because they make it more expensive to borrow money. Investors may also be discouraged from buying stocks, putting money in a savings account instead.

At worst, these factors could lead to a stock market crash. But even if this event is not imminent, I feel a fallback in the market is likely. This is something I must be prepared for.

So, why would I buy UK shares?

It may seem weird that I’m still buying UK shares in the face of a possible stock market crash. But here at The Motley Fool, we’re long-term investors, and I still feel that many UK shares offer good value. This viewpoint is shared by many US private equity firms, which are currently aiming to take over British companies.

Take Morrisons, for example, which has risen nearly 70% over the past couple of months due to takeover offers from both Clayton Dublier & Rice and Fortress. This is despite the firm being impacted by the current supply chain disruption and staff shortages. This caused first-half profits to fall 43% to £82m in the first half of this year. The British defence and aerospace manufacturer Meggitt has also soared after its own takeover bid, at a significant premium to its pre-offer price. Examples such as these demonstrate that there is still long-term value in UK shares and therefore, I’m not letting the possibility of a stock market crash and short-term volatility deter me.

What kind of UK shares?

There are good arguments for many UK shares, yet I’m mainly focusing on those with good financials. This is because they should be able to withstand a stock market crash better than others. Some examples I like include BAE Systems, Legal & General and Diageo.