Prices of UK shares have exploded at the beginning of 2023. But some stock prices pared gains in recent days as investors’ worries over high inflation resurfaced.
The latest consumer price inflation (CPI) reading from the US came in at a forecast-topping 6.4% in January. Meanwhile, a UK CPI reading of 10.1% for last month remained uncomfortably high.
As Nigel Green, chief executive of financial advisory firm deVere Group, noted:
“Markets are now betting on a longer period of higher interest rates as they begin to take heed of the message from central bank officials, including those from the US Federal Reserve, Bank of England and European Central Bank, that there’s still a way to go to cool inflation in the face of robust labour markets and wage growth.”
4 hot UK share sectors
The problem for investors is that high interest rates cause consumers to reduce spending, which in turn hits the economy and the profits that certain companies make.
This doesn’t mean that UK stocks should be avoided, however. Investors can still find plenty of them that should thrive in spite of the tough macroeconomic environment.
Nigel Green has identified healthcare, luxury goods, energy and agriculture as four industries that should remain resilient in the current landscape. He explained that these sectors “can maintain margin despite inflation and interest rate hikes.”
In rude health
The deVere CEO said that “healthcare is a robust sector as people will always need to stay healthy”. In fact, the thinks this theme has risen in importance in the post-pandemic era.
Green also said ageing populations and other demographic changes provide health-related companies with strong earnings potential. And he thinks the increasingly-tech driven sector also provides investors with opportunities.
I’m considering buying GSK shares for my portfolio right now. That’s even though expensive failures at the drug testing stage are extremely common. I expect demand for its medicines to steadily increase as populations grow and healthcare investment in emerging markets rises.
Other investment opportunities
Looking at those other sectors, Green said that “luxury goods [companies] can maintain margin due to the inherent aspirational ‘elite and exclusive’ aspect of the sector”.
Burberry could help me to build wealth here, to cite one example. Fashion changes quickly and a badly received collection can prove disastrous for earnings. But encouragingly, this FTSE 100 business has a terrific track record on this front that spans 167 years. It also has splendid brand power that keeps its products in high demand.
As for energy, Green thinks “a shortage of energy in the world right now” could make the sector an ideal place to invest. Renewables firms like wind farm operator SSE could be lucrative shares to invest in here as demand for clean power soars. I’m conscious, however, that unfavourable weather conditions has smacked profits in recent years.
Finally, Green believes agriculture could be a great sector for investors. That’s because “emerging markets around the world are eating more meat” and as they do so, “there needs to be more grain produced”.
For this reason I’m considering adding Carr’s Group to my portfolio. This small-cap share supplies livestock feed, farm machinery and fuels. I’d buy it even though a lack of suitable takeover targets could derail its acquisition-led growth strategy.
