Buying UK shares today may not necessarily produce impressive returns in the short run. There’s an ongoing threat of a second stock market crash, with risks such as Brexit and coronavirus continuing to weigh on investor sentiment.
Despite this, many British stocks appear to be undervalued at the present time. They could deliver high returns as the economic outlook strengthens and investor sentiment improves. Therefore, investing £10,000, or any other amount, in them today could prove to be a sound move in the coming years.
The threat of a second stock market crash
UK shares are likely to remain susceptible to a second stock market crash in the coming months. Brexit looks set to remain a major news story between now and the end of the year. Whatever the outcome, it may cause some uncertainty for investors due to it being an unprecedented event.
Similarly, the situation with coronavirus could improve or worsen over the coming months. As was seen earlier this year, further lockdown measures may mean lower profits for businesses that prompts falling stock prices.
Buying opportunities among UK shares
Of course, UK shares always carry the ongoing threat of experiencing a downturn. Sometimes, bear markets can be prompted by one-off events that cannot be foreseen. Therefore, investors who have a long time horizon may need to accept that there’s always the possibility of experiencing paper losses in the short run.
Furthermore, the prices of many British stocks appear to factor in the heightened prospect of a second stock market crash. They trade at price levels not seen for a number of years. That’s despite them appearing to have the financial means to survive a tough period for the economy. As such, their margins of safety may offer some protection to investors against the prospect of falling stock prices in the near term.
On a long-term basis, UK shares could deliver high returns. As well as their low prices, they have strong competitive positions and solid growth strategies in many cases. This may allow them to capitalise on a likely economic recovery. And, with the stock market having always made new record highs after its various downturns in the past, buying such companies now could lead to recoveries in their valuations. Even if they experience further challenges in the short run.
Investing money elsewhere
Investing money in UK shares appears to be a logical move on a relative basis. Other assets, such as cash and bonds, lack return appeal due to low interest rates. Meanwhile, buy-to-let property seems expensive during a weak period for the UK economy.
As such, undervalued British stocks could be the best place to invest at the present time. Although they face an ongoing risk from a stock market crash, their cheap prices seem to merit purchase.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.