Last year at this time was an optimistic one. Vaccines development had happened only a few months ago and it seemed to be only a matter of time before the economic engine would be back with a bang. Cut to now, and the recovery has underwhelmed. In fact, just earlier today, the International Monetary Fund (IMF) cut forecasts for global economic growth in 2022. But, I still believe that there is an opportunity in the UK’s stock markets. In particular, in FTSE 250 stocks.
UK’s fast relative growth
Let me explain. According to the IMF, all advanced economies could see slower annual growth now, save Japan, whose growth is forecast to increase by a small 0.1 percentage point. But even after this reduction, the UK has the fastest growth among this group of economies, with the exception of Spain. Spain’s growth is forecast at 5.8% while the UK’s growth is seen to be at 4.7%. The next fastest growing advanced economies are Canada and the US at 4.1% and 4%, respectively, which are at a significant distance. There is no other European economy that has a 4%+ growth forecast. After the UK comes the German economy, at a rate of 3.9%.
Focus on FTSE 250 stocks
My point is, that the second-fastest growth expected among European countries is the UK, reflects well on the potential for companies here. FTSE 100 companies are typically globalised multinationals, but the next biggest publicly listed companies, which are covered under the FTSE 250 index, are more UK-market-centric. Continued robust growth is an encouraging sign to me for their prospects.
Note that the comparison with other economies is essential, because stock market performance in any year is relative. Even if the UK were growing at half the rate, if the other economies were growing even slower, it would still have a comparative advantage. And that could make a difference to the investment funds allocated to it.
My investment portfolio
And indeed, plenty of FTSE 250 stocks look promising to me. I hold seven of the index’s components in my own investment portfolio. These include recovery stocks that I expect to pick up this year, like Cineworld, easyJet, and National Express. But I also bought on dip those that performed well last year and that I expect to make gains over time. These include the likes of investment platform CMC Markets and iron ore miner Ferrexpo. The returns on these have been mixed so far for me, depending essentially on when I bought these stocks. But as I look at their stock prices today, every single one of them is seeing rising prices, which is heartening.
What I’d do
This could change of course. Stock market are still uncertain. Another coronavirus variant could derail the recovery. So could ever-rising inflation. And I expect mounting government debt to be a challenge in this year too. Still, I think we have a whole lot to look forward to. Growth is still expected to be robust. And FTSE 250 companies are still reporting positive results. There are plenty of stocks I like and am happy to buy from the index now.
Manika Premsingh owns CMC Markets, Cineworld Group, Ferrexpo, and National Express Group. The Motley Fool UK has no position in any of the shares mentioned. 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.
