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Why I’d buy beaten-down UK shares to cope with inflation

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There was carnage on the US stock markets on Tuesday, following worse-than-expected inflation figures. I fully expected to see UK shares taking a fresh hammering Wednesday after the equivalent UK inflation data was released. But no, at least not so far.

The US consumer price index rose by 8.3% in the year to August, above the forecast 8.1%. US stock markets plunged as a result. The S&P 500 ended Tuesday down 4.3%, while the tech-heavy Nasdaq fell by 5.2%.

In stock market terms, those are huge one-day drops. My teeth were clenched when I checked on the FTSE on Wednesday.

But there was no sea of red. At the time of writing, the FTSE 100 is off by only around 50 points, or 0.7%. And while some stocks are down, some are in the green too.

Inflation dropping

The UK consumer price index had reached 10.1% in July, and was widely tipped to climb as high as 14% before starting to ease. But the August figure has come in just below 10%, at 9.9%.

We’re still looking at inflation levels close to 40-year highs, though. And that’s very hard on our pockets. But what money I can afford to put away for the future is most definitely going into UK shares. So many just seem super cheap now.

Let’s look at Wednesday’s biggest FTSE 100 fallers to see what I mean.

Even cheaper shares

At one point, Abrdn was the biggest faller of the morning, down 4.2%. And I can understand why. It’s an investment manager, and when times are tough its business is hit. Investors are withdrawing cash — partly because they need it now, and partly to try to invest somewhere they think is safer.

But I reckon UK shares will bounce back and carry on generating cash for decades to come, the way they have done for more than a century already.

Essentials

National Grid is down there too, on a 2.5% loss. I need to stop and think about that for a moment. Yes, energy bills are high. But electricity and gas are surely going to continue to flow through National Grid’s networks for many years to come. And the company will keep making profits and paying dividends, won’t it? Today’s forecast yield of 5% looks good to me.

United Utilities has dipped 3.4% as I write, with Severn Trent down 3%. What, we’re not going to keep needing water, and waste services? It’s got to be one of the most essential essentials there is, surely?

Risky but unmissable?

There is extra risk investing in a bear market. A period of recession and reduced consumption is going to harm a lot of businesses. So whatever shares I buy in 2022, I might well be sitting on losses by this time next year.

And I’m not banking on earning the 10% I’d need to beat inflation from my investments this year.

But to cope with long-term inflation, I really can’t see any better investment than in the economy itself. So I’ll keep buying UK shares, mostly FTSE 100 ones. And I’ll get more for the same money when they’re cheap.

The post Why I’d buy beaten-down UK shares to cope with inflation appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. 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.