It’s almost a year since since UK share markets fell through the floor. But investor confidence is yet to fully recover from the stock market crash that took the FTSE 100 to multi-year lows. In fact, the Footsie is still trading at an 11% discount to those pre-crash levels below 6,600 points.
Major UK share markets have failed to replicate the strong rebounds of other major international indices for various reasons. Firstly, the economic recovery in Britain threatens to be weaker than those of other nations due to the twin pressures of Covid-19 and Brexit. The services-heavy nature of the British economy also leaves it in huge danger of languishing for longer should coronavirus lockdowns drag well into 2021 and possibly beyond.
UK shares set to rebound?
There’s also the fact that, unlike the FTSE 100 for example, indices like the Nasdaq and the Nikkei are packed with tech companies. These sorts of companies have enjoyed a strong profits uplift from the rise of e-commerce, remote working and video streaming, among other causes. Amazon and Netflix are just a couple of US shares that have enjoyed a considerable profits bump over the past year.
By contrast, the FTSE 100 has a strong weighting to banks and oil producers. Cyclical UK shares like these include Lloyds and BP that have been hit hard by Covid-19. And they stand to suffer further if the economic recovery fails to ignite.
But could now be the time to buy UK shares? There are a lot of quality companies I think remain pretty cheap following the 2020 stock market crash. And signs of falling coronavirus cases across much of the globe suggest that we could be on the cusp of a robust economic upturn.
Expensive but exceptional?
Recent studies suggest that investing in the recruitment sector could be a good way to play the new bull market. A survey just released from the Chartered Institute of Personnel and Development showed that more than half (56%) of UK firms plan to take on more staff in the next few months. This is the best result for around a year.
The data suggest that now could be a great time to invest in UK shares like Hays (LSE: HAS). This particular recruiter actually saw net fees and profits accelerating during the final calendar quarter of 2020. And so the firm declared plans to start paying ordinary dividends again from the summer. It wants to dole out a £150m special dividend too. The scramble over the past year to save cash is clearly receding.
City analysts think that Hays’ annual earnings will slip 61% this fiscal year (to June 2021). But they reckon the bottom line will rebound 184% in financial 2022. A word of warning, though: today the company trades on a sky-high forward price-to-earnings (P/E) ratio of 77 times. I think this could cause this UK share to plummet in price if the fight against Covid-19 takes a nasty turn and the anticipated economic recovery fails to materialise.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Netflix. The Motley Fool UK has recommended Lloyds Banking Group and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.