Investors’ Guide: Is it the Right Time to Invest in the British Capital Market?

  • May 21, 2020 07:28 PM BST
  • Team Kalkine
Investors’ Guide: Is it the Right Time to Invest in the British Capital Market?

London Stock Exchange during this Time of the Pandemic

Right after the pandemic broke out in the United Kingdom, the London Stock Exchange had a tumultuous ride in most of its popular indices. Most investors be it domestic or international started pulling out their funds initially given the pace at which the markets were spiraling down. In no time, London Stock Exchange witnessed record low levels in line with the global financial crash where exchanges were hitting the lower circuit breakers multiple times in a day.

Now as the country has decided to open up the lockdown, it is time to explore whether the opportunity is right to invest in the London Stock exchange and are the stocks at this time trading at fair prices or are still expensive. It is also very important at this juncture to look at the the London Stock Exchange from a long term perspective as when the country came out of the European Union on 31st January 2020 it represented a massive opportunity for the country to transform itself and scale new highs in terms of technological and economic development.

How have the Larger Indices Performed during the Lockdown

The London stock exchange had already started to feel the heat of the pandemic before it hit the countries shores. Most of the companies who had exposure to China started to issue revenue and profit warnings due to several factor including delayed shipment of components as well as falling sales levels of companies who had sales in china. The situation did have a significant impact on the markets then, but the real bad weather came when the pandemic started to spread in the country and the government was forced to impose a lockdown in the country. Almost all business activity in the country came to a standstill with clear signs of most companies reporting in the red for the year. This situation was again exacerbated by the international oil prices which saw record lows that had not been witnessed before. Since the beginning of March 2020, the FTSE 100 index started sliding to reach a low of 4993.89 on March 23 when the Lockdown was imposed. Although it has recovered slightly since then, but still is nowhere near to where it was on the March 1. Similar was also the situation with the FTSE 250 index which saw a bottom during the March 19-23 period and has only made a slight recovery since then.

Post Brexit Investment Scenario

Before the Pandemic hit the country and took down a lot from the economy, the country was in a jump start state. Since the past few months, it had been preparing for 31 January 2020 when the United Kingdom and European Union finally parted ways (Brexit). The government had drawn massive plans to jump start the economy with substantial expansionary budget that would have put the growth rate of the country’s GDP among select few emerging economies. All this was, however, before the pandemic hit. A lot of preparation was done in the British economy to deal with any eventuality that may occur when the Britain exits the European Union. The Bank of England in the final days of 2019 had conducted a stress test with the countries banks and had found out that the banking system in the country is strong enough to withstand any eventuality that post Brexit scenario might throw at them. Even most of the businesses in the country had been conserving cash for the past few years and not making any forward capital investments in fear of an unforeseen eventuality. The unforeseen eventuality, however, did come knocking and it was a big one, and all this preparation had certainly come to the aid of the country to fight off this pandemic.

Is the Market Expensive Now, Risk And Reward Analysis

So what does the situation looks like for the prospective investor who wants to get into the capital markets now. What is the long term, mid-term, and short term outlook. How are the stocks currently valued and how much downside risk is still present in the markets.

The London stock markets is trading at lows like it had not been seen in a long time, most of the high performing stocks are now available at historically cheap prices. The market which was continuing to slide till the lockdown came into effect has been recently arrested by investors which came out and did value picking of some of the value and growth stocks. Since March 23 when the markets hit the rock bottom, the movement has been mostly sideward giving an indication that markets may have hit their bottom and there may not be much of a downside risk from here. Given the situation it may be inferred that most of the good stocks in the market now are available cheaply. Looking at the larger picture, the British economy is in a state of transformation where the government has lined up massive expansionary expenditures for the next few years. When such an economic polity is adopted by a country it generally have a positive impact on its capital markets who benefit form the increased cash flow inflow into the markets in a near mid to long term.

Future of the British Capital Markets

The London Stock Market could potentially see a transformative change in the next few years. The separation from the European Union, new trade deals, a new tariff regimen and a massive expansionary budget will create immense new possibilities for businesses in the country. London Stock Exchange is also home to a number of international companies who have made London their home and have been expanding their businesses globally. In times to come, as the British economy transforms so would the importance of the London Stock Exchange increase, more and more domestic companies would want to venture out to expand their businesses and a greater number of foreign companies would come to list on this exchange. The opportunity, thus, for investors on the London Stock Exchange is immense and now might be the best time to enter as mostly things look cheaply valued.



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