By Paul Kelly
Since around the start of the Russian invasion of Ukraine, there has been a general price fall in the stock market, driven mostly by interest rate rises and falls in the technology and consumer products sectors, but expanding to most other cyclical sectors. This naturally presents a buying opportunity for stocks that have been oversold in the general selloff. In particular, mid cap stocks present the advantage of being unlikely to go into insolvency in a recession, but fluctuate more than large cap stocks, meaning that taking advantage of any fluctuation will yield more of a gain.
At the present, global bids for British firms in the financial sector have become more common. For example, Nordic Capital acquired Ascot Lloyd in April and HPS will take a majority stake in the Nucleus/James Hay business. This indicates that private equity firms are starting to profit from businesses being undervalued in the UK stock market.
A possible counterargument to this is that business conditions are currently extremely unfavourable and could grow worse in terms of both inflation and supply chain issues if China moves to invade Taiwan. However, any invasion is relatively unlikely considering that the difficulties that the Russian army has encountered in Ukraine are much higher than anticipated. Moreover, the geopolitical impact of the Russia/Ukraine event has led to additionally leveraged political pressure. Any invasion will be considered less likely than predicted by Western observers before the Ukrainian conflict.
Furthermore, that the conflict in Ukraine will continue for a long time has already been widely recognised in the West, and as such can be assumed to be priced into the market. Hence, the conflict will likely not exert any further negative pressure on the stock market, aside from continuing inflation incentivising central banks to pursue a policy of high interest rates.