Investing is risky as well as rewarding, and I’ve been thinking about two investment risks that I’m worried about in particular.
2024 was a fairly good year for the UK share market with the FTSE 100 gaining nearly 6%. But now, with the year becoming a distant memory, my mind has turned to protecting my portfolio in the months ahead.
While I’m optimistic about investing in UK stocks, there’s plenty of uncertainty in the world and I’m considering buying GSK (LSE: GSK) shares as a result. But first, let’s look at those two risks.
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Geopolitics
Last year was the year of elections. A big chunk of the world’s population headed to the polls including the US where Donald Trump claimed victory to secure a second term.
Analysts are watching carefully to see what policy changes the new administration will put in place. Many are tipping that deregulation could pave the way for more investment activity including mergers and acquisitions.
On the other hand, tariffs are widely expected but just how much and on which products are unclear for now. These could well stifle global and UK economic growth in 2025, despite the British government’s efforts to boost spending in key areas like housing.
Inflation pressures
Stubborn inflation is also weighing on my mind. Potential trade policy changes in the US could raise prices just as it had seemed inflation was coming under control.
Similarly, increased UK government spending could increase demand (and prices). Any large surprises may well spook investors as that could well mean the Bank of England takes a different interest rate policy path versus expectations.
Where I want to invest
These are just two investment risks that are on my mind right now and I’m looking to add more defensive exposure to my portfolio.
The Footsie boasts a number of large pharmaceutical companies, including AstraZeneca and GSK. The latter is the one that I’ve been narrowing in on in recent weeks as a potential buy.
The resiliency of the sector is certainly one part of my thinking. However, I also like that it’s a UK-based company with global footprint including strong links to the US.
Pharmaceutical companies can often pass on rising costs quite effectively to their customers, which can provide something of an inflation hedge. I also think the company’s track record as a dividend payer shows it can be investor-friendly in returning capital.
Key risks
Of course, GSK isn’t immune to risks. While the company has been actively building its research and development pipeline, there’s always uncertainty surrounding drug approvals as well as fierce competition from rivals.
Customers may also eventually reject price increases, which could hurt profitability, as could fierce competition from rivals.
Valuation
Yet the company’s 13.9 price-to-earnings (P/E) ratio is below the 14.5 average for the Footsie and looks a little cheap for a large player in a defensive industry. Rival AstraZeneca’s shares are trading at a multiple of 32, albeit it does have a £167bn market cap compared to GSK’s £56bn.
I’m certainly considering GSK shares as a way to help hedge against some of the investment risks I see looming in 2025. It’s one of the names up the top of my list to buy when I gather the funds to buy.
