Jo Jehan from our advisory investment team in Guernsey writes this week’s update.

The UK stock markets began the year in a strong position and despite the events over the last few months which most notably saw them drop sharply in March, have made a surprise return in April to levels marginally higher, which is a remarkable turnaround. The leading UK equity index has outpaced all other UK stock indices so far this year, adding 1.8% in the first three months, compared with a decline recorded by the wider UK indices of more than 10%¹.

The UK’s leading index has been helped this year by its international diversification and the fact it has direct beneficiaries of rising commodity prices – notably oil giants BP and Shell, mining companies such as Anglo American and Rio Tinto, plus high exposure to defensive business such as pharmaceuticals and food producers. These have all fared well despite the circumstances, which are economic headwinds for the consumer.

Even before the war in the Ukraine, the threat of inflation had been lurking for some months and rising commodity and energy costs were already surging. We have witnessed very volatile markets in recent weeks and one would be forgiven for thinking the UK market might have looked in far worse shape than it does now. We do, however, think it offers some compelling opportunities and our view remains that the UK equity market continues to offer good long-term value.

Whilst there is much sad news in terms of the humanitarian impact of the Russia/Ukraine conflict it is also having a serious impact on the profitability of dozens of the world’s biggest companies who have scaled back or abandoned their operations in Russia. Shell announced last week that they expect to lose as much as $5bn in Q1 2022, resulting from impairment charges following the company’s decision to exit the country². The estimate was part of an update released ahead of publishing their first quarter earnings on 5th May.

The scaling back of reliance on Russia has opened up opportunities closer to home, with Boris Johnson announcing his strategy to increase UK energy independence. These plans include increasing Britain’s offshore wind power capacity to produce up to 50 gigawatts of energy by 2030 and to strengthen the UK’s nuclear capacity by delivering up to eight new reactors which will be built on existing sites, with a new reactor approved each year until 2030.

Source: https://www.gov.uk/government/publications/map-of-nuclear-power-stations-in-the-uk

The advisory team’s ‘recommended list’ has a number of constituents that are set to benefit from this new strategy. In recent weeks we have seen many of these companies raise funds through Placings after identifying new investment opportunities. These companies remain attractively priced, many pay a reasonable dividend and offer good growth potential. We continue to research and identify new opportunities for our clients, being mindful of what factors may influence the economic climate.

If you would like to discuss any of these opportunities, please contact your usual advisor.

Enjoy the extended Bank Holiday weekend!

Sources:

• ¹ London Stock Exchange
• ² Bloomberg