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The UK economy looks poised for a prolonged period of weakness. So I’m building a list of FTSE 100, FTSE 250 and Alternative Investment Market (AIM) shares that could protect my wealth in this tough landscape.
The National Institute of Economic and Social Research (NIESR) has in recent days warned of “even chances that GDP growth will contract by the end of 2023 and a roughly 60% risk of a recession at the end of 2024”. The think tank has also said Britain faces five years of “lost” economic growth.
Here are three stocks I think could prove useful additions to my portfolio in this tough climate.
Buying build-to-rent businesses like Grainger (LSE:GRI) is a good idea right now, I feel. This is despite the impact of higher-than-usual construction costs on profits.
Not only is this because rent collections stay relatively stable during economic booms and busts. It’s because a chronic shortage of rental properties is driving rental income through the roof. Like-for-like rent growth at FTSE 250-listed Grainger came in at 7.1% during the eight months to May.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS), has said that “rents are likely to continue rising sharply” amid a lack of supply. Weak housebuilding rates and a steady departure of buy-to-let investors look set to persist too.
Value retailers are likely to be in high demand as consumers continue to feel the pinch. This makes B&M European Value Retail (LSE:BME) a top buy, despite the problem of rising labour costs.
Latest financials showed like-for-like sales at its flagship B&M stores rose 9.2% between April and June. The company is rapidly expanding to capitalise on the favourable trading environment too. It plans to eventually have 950 B&M stores up and running, up from just over 700 today.
The plunge of fellow value chain Wilko and its 400 stores into administration provides the FTSE 100 firm with an added boost. I’m confident it will thrive despite its lack of online presence that could see it lose business to supermarkets and general retailers like Amazon.
Pawnbrokers like H&T Group (LSE:HAT) are also trading strongly as people try to raise a little extra cash. Profits at Britain’s largest operator soared 31% in the first half of 2023, data last week showed. This was driven by a 14% increase in its pledge book (which includes short-term loans linked to customers’ belongings).
Through its jewellery retail and gold scrap business, the AIM company also provides investors with handy exposure to the precious metals markets. Should the global economy struggle and inflationary pressures persist, prices of gold (which are currently perched near record highs) might head even higher.
I’m also impressed by the company’s travel money division where foreign currency transaction volumes sit at record levels. I’d buy H&T shares, even though it faces high competition from money lenders.