It’s true that the UK economy isn’t in a great spot at the moment. GDP growth is almost non-existent, with some analysts saying that we’ll go into a recession later this year. Yet this doesn’t mean that I have to write off UK shares as bad assets to own. In fact, I think there are several reasons why I can still get rich — or at least richer than I am today — from the stock market.
International scope
A big factor to consider is the operating model of many FTSE 100 companies. Just because a stock is listed in the UK, it doesn’t mean that it only trades here. In fact, the opposite is frequently true. When I went through the list of constituents, I struggled to find many that don’t trade abroad.
This is a positive sign for investors who might be concerned about the UK economy specifically. It means the share price of a firm shouldn’t be correlated to specific hardships locally. For example, Coca-Cola HBC has a large presence in Europe. However, the UK is a small market for it, with Greece and Italy being far bigger. Nigeria is another large market for the firm. Of course, it’s still going to be impacted a little by the UK, but not enough to worry me.
Coca-Cola HBC shares are up 22% over the past year. Granted, this isn’t going to make me rich by itself. Yet the outperformance relative to the broader market shows that it’s not all doom and gloom.
As a risk, the opposite is also true in that international sales can hamper a company. For example, the Burberry share price fell sharply last week as it cut profit guidance. Weaker sales in America were flagged as a factor.
Buying domestic shares on the dip
If we do have a tough 2024, I expect domestic UK stocks to perform badly. This could be true especially for retailers and luxury brands.
Yet I’m going to keep such stocks on my watchlist. My aim is to buy those shares on the way down, at levels that I believe to be cheap. In the short term, the stock might continue to fall. But over time, I’d expect the share price to recover back to a fair value.
So, in buying undervalued UK stocks over the course of this year, I should be able to make profits in the long term. One concern is that it could take a while for the stocks to recover.
Trying to build wealth
UK shares can build my wealth significantly, but it’s not an overnight thing. Let’s assume that I put £600 a month in stocks that trade internationally, along with £600 in local undervalued stocks.
I’m going to assume that I can generate a 10% annual return over the course of the next 15 years (which isn’t guaranteed, of course). By the end of this period, my portfolio could be worth just over £500k! Obviously it’s subjective, but having an extra half a million would certainly mean I could get out of London and buy a house.
