UK shares: has avoiding a recession triggered a once-in-a-decade …

I think this could be a great time to buy UK shares. Recessions happen on average once every 10 years and are often accompanied by falling share prices, giving enterprising investors a chance to find bargains. But what’s better than a recession?

Avoiding one when everyone is expecting one and marking down share prices – which is why I see this as a real opportunity in UK stocks at the moment.

Recession cancelled?

The two worst-performing FTSE 100 shares over the last 12 months have been Persimmon and Segro. That’s hardly surprising – both are highly cyclical businesses that look vulnerable in a recession. Persimmon is a housebuilder.

Demand for properties tends to contract in a recession, which is why the prospect of an economic downturn has been bad for the stock price. Segro owns and leases industrial real estate. Lower economic activity might cause some of its tenants to struggle to pay their rents, while also weighing on the value of the company’s assets.

But despite rising interest rates and high inflation, a recession doesn’t seem to be imminent. In fact, the Office for National Statistics recently revised estimates about the UK’s output at the end of last year. Economic activity in the third quarter of 2022 was upgraded from -0.2% to -0.1%.

And the fourth quarter is now thought to have seen growth of 0.1%, rather than the flat performance previously reported. That means a recession – defined as two consecutive quarters of negative economic activity – isn’t imminent. The earliest the UK could officially be in a recession is at the halfway point of this year.

More generally, things seem to have been going better in the UK than previously thought. In particular, the construction sector is estimated to have grown by around 1.3% at the end of last year.  So might of the pessimism around property stocks has been unwarranted?

And if so, might this be a rare opportunity in shares that have been falling in anticipation of a recession?

Outlook

Good news about the broader economy is generally good news for both Persimmon and Segro. But the question of whether or not these are now stocks to buy is a little more complicated. I think there are still significant headwinds for both of these businesses.

Even with a recession ruled out, there’s still high inflation and rising interest rates to deal with.  This looks like a particularly challenging combination for Persimmon. High inflation makes materials more expensive and rising interest rates dampen the property market, making it harder to pass on these costs.

The company also reduced its dividend by 75% at the start of the month. I’m therefore not expecting significant shareholder returns in the near future. With Segro, things are a little different.

The rental market for industrial properties is still fairly strong, despite the value of its assets falling.  There’s also an argument to be made that inflation might be beneficial for the company. Higher prices makes it more expensive for competitors to set up their own warehouses.

Overall, I think the recent news makes Segro look more attractive than Persimmon.

I’m looking seriously at the recent declines as a chance to buy the stock for my portfolio.

Tags:

garden-wildlife-direct listed on couponmatrix.ukgold-standard-nutrition listed on couponmatrix.ukheadspace listed on couponmatrix.ukiberostar listed on couponmatrix.uknew-era listed on couponmatrix.uknobodys-child listed on couponmatrix.uk
garden-wildlife-direct listed on couponmatrix.ukGarden Wildlife Direct is a family run business and the UK’s largest online independent bird food supplier. They are passionate about supporting nature and guarantee to offer the very best quality bird food at the best prices, all delivered direct to your door. With a passion for maintaining garden wildlife, Garden Wildlife Direct are dedicated to making caring for your garden wildlife both affordable and easy. Why not try them out for yourself and use a garden wildlife direct discount code to save money on your purchases?
gold-standard-nutrition listed on couponmatrix.ukGSN is affordable, loaded with protein and nutrients, and it reduces meal prep down to a measly six minutes. If you care about fitness but often find yourself short of time, this one’s a no brainer! Whether it’s the Gold Standard Nutrition Pots O Gold or the convenient protein bars for nutrition on-the-go, we’ll help you save money at GSN with a Gold Standard Nutrition discount code to reduce the order total. Try out these high-protein meals and snacks for a well-balanced diet that unlocks more free time – the bundle discounts could save you a fortune!
headspace listed on couponmatrix.ukHeadspace is there to support you through the stresses of modern life, and we’re here to help you save money on membership. The science-backed app offers guided meditation, animations and videos to give you little boost on your mindfulness journey. We’ll keep you updated on any Headspace discounts, so you can cross money worries off the list too. Caring for our mental wellbeing is so important, and Headspace makes it easy and accessible - for everyone.
iberostar listed on couponmatrix.ukWhen you’re preparing to jet off on that longed-for holiday, you want to be sure you’ve got the accommodation right. Place your hotel booking in the capable hands of Iberostar and you can expect a memorable stay in one of the best hotels and resorts in Europe, North Africa and America. Don’t forget to use your Iberostar discount code to unlock the door to the hotel of your dreams, and whether you’re looking for beachside family fun or an adults-only stay, you won’t have to blow your budget.
new-era listed on couponmatrix.ukNew Era have been crafting headwear since 1920, and since 1950 this craft developed into the iconic baseball cap which we know and love today. New Era is the place to go for every type of cap you want in the best styles around. The 59FIFTY style has had a long journey, but it is now a symbol of street style across the globe, and with your New Era discount code you can get one for less. Today it’s not just caps, you can pick up all sorts of apparel and accessories too, so have a browse and see what catches your eye.
nobodys-child listed on couponmatrix.ukWant to a be an eco-friendly fashionista that can turn heads as well as helps the environment? Then Nobody’s Child should be on your radar, creating innovative clothing designs out of leftover fabrics all-year round. Delve right into their wares with a Nobody’s Child discount code and add essential styles to your selection on a budget, including dresses, trousers, tops, jumpsuits and plenty more. If you hate the idea of crowded landfills and empty wardrobes, you’re right where you belong at Nobody’s Child.