With tensions on the Ukrainian border growing each day, the threat of a stock market crash seems ever closer. Experience of past cycles tells me that, in uncertain times, risk appetite falls and investors gravitate towards larger companies with proven track records. Should I follow the herd and seek refuge in blue chip stocks?
The much-talked-about return to “value” stocks is a popular trend, and I decided to take a good look at some of the largest companies around the world – and in particular FTSE 100 shares that could be a good refuge for my portfolio in the dark days to come.
The first shock for me was to find out that so few of our prized UK companies are relevant in a global context. Out of the top 100 listed companies in the world (by stock market value), only four are found within the ranks of the FTSE 100.
Even these four have slightly tenuous links to the UK.
Banking giant HSBC (LSE: HSBA) moved its headquarters to the UK back in 1993, while Shell moved from the Netherlands only last month. AstraZeneca, of course, has a strong UK presence, but Linde has its origins in Germany and the US.
Changing the goalposts and looking at the same top 100 by earnings, only a slightly better picture emerges for the UK. Linde drops out, but HSBC, BP, Liberty Global (LSE: 0XHR) and AstraZeneca all figure in this league table.
This is clear evidence that the UK has lost out during the tech boom over the past 25 years, but perhaps this is what may make our shares a better refuge for the tough times ahead?
According to Bloomberg, the FTSE 100 currently trades on a price earnings ratio of around 16 times and has a dividend yield of around 3.3%.
This appears better value than the US markets — with the tech-heavy NASDAQ 100, for example, trading at over 33 times earnings. This looks pricey, at a time when questions are being raised over the future growth in profitability of some tech stocks.
Of the UK “refuge” stocks available, I particularly like the look of HSBC and Liberty Global.
With a trend of increasing interest rates, banks will (as in previous cycles) surely benefit, and strong full year 2021 results are forecast to be reported by HSBC later on this month. It should, however, be noted that this strong rebound in performance will be due to a degree by the release of large credit provisions, which were put in place by the company during the early stages of the pandemic.
Liberty Global, in my opinion, has a strong business model and I like the way it is investing heavily in its key markets.
Management clearly think it is undervalued and have committed up to $1.4bn to a share buyback programme in the 2021 financial year. Liberty’s commitment to fixed and mobile communications convergence is something I’ve bought into on a personal basis, and the operator of the Virgin/O2 platform in the UK looks a good future bet.
The telecoms sector is, however, extremely competitive and other players, such as Sky and Vodafone in the UK, will need to be watched carefully.
