Investment Insider: Be smart over shares as economy recovers

Choose carefully and you may benefit as we come out of recession

No one has yet been brave enough to suggest "green shoots" of recovery, just in case they turn out to be advanced mould. But as private investors we can afford to look a little further ahead than cautious politicians. After all, waiting for a recovery to be fully entrenched before investing might mean having to pay more for our shares. That said, it pays to be cautious.

You would think that as businesses come out of a recession, the future would start to look brighter as profits and cash swell those depleted coffers. However, emerging from a slowdown can sometimes be more perilous than entering an economic downturn. That's because as companies enter recession, they tighten their belts and trim output in line with reduced demand. In other words they downsize and dispose of underperforming businesses to conserve cash. That's the easy part.

The difficulty comes when companies need to cope with increased demand after a recession. Some may find that, as a result of over-prudence, they could be faced with insufficient production capacity and shortage of working capital.

They may also find that better-positioned and better-financed competitors might start to eat away at their share of the market. Consequently, it is important to focus on companies that have adequate working capital.

Banks are an obvious recovery share. If you haven't already noticed, banks have been extra prudent over the last few years, much to the annoyance of the Government. They have been reluctant to lend and instead chosen to rebuild their balance sheets in readiness for the recovery. They understand better than most that economies cycle through booms and busts. They were badly wounded by the downturn but are also best positioned for a recovery. Banks are also in a good position to cope with the eventual interest rate rises. They will simply pass on the higher cost of borrowing to their customers. The UK's largest banks, including HSBC and Barclays, are expected to post higher profits this year and next.

House builders are another sector that could emerge stronger from recession as demand for new homes improves with rising consumer sentiment. According to figures from the Council of Mortgage Lenders, gross mortgage lending in the first three months of this year, although down significantly from its peak in 2007, has been on the rise over the last three years. Persimmon, which was recently promoted to the FTSE 100, and Barratt Developments are both expected to report respectable increases in profits over the next couple of years.

An end to recession may also see a rise in demand for commercial office space as businesses dip a tentative toe into expansion. London-focused Workspace Group is a Real Estate Investment Trust, which means that it must distribute at least 90 per cent of its income as dividends to shareholders. Profits are expected to be flat next year but they could bounce higher the year after. In the meantime, investors could enjoy a dividend yield of around 2.7 per cent. Regus provides flexible workspace for businesses not only in the UK but around the world too. Profits were hit badly following the financial crisis. However, its recovery has been almost as spectacular as its deterioration. Profits are expected to return to pre-crisis levels within the next two years.

David Kuo is director of

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Management Accountant

    £27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    Day In a Page

    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'
    Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

    Flesh in Venice

    Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
    11 best anti-ageing day creams

    11 best anti-ageing day creams

    Slow down the ageing process with one of these high-performance, hardworking anti-agers
    Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

    Juventus vs Real Madrid

    Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
    Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

    Ashes series looks a lost cause for England...

    Whoever takes over as ECB director of cricket, says Stephen Brenkley
    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power