While the FTSE 100 has been volatile in recent weeks, now could be the perfect time to invest for future growth. Certainly there could be further falls in near-term share valuations. Investors seem to have been spooked by the prospect of higher global inflation and interest rate rises. As such, further market turbulence may be ahead in the short run.
However, in the long run, now could be a great time to be a growth investor. The prospects for a range of FTSE 100 companies appear to be bright, with Brexit a key factor behind this.
While the index has risen significantly in recent years, a number of UK-focused stocks have seen their valuations come under pressure. Sectors such as retail have generally underperformed the wider index with a large proportion of their sales and profitability being derived from the UK.
Indeed, investors don't seem to be particularly positive about the outlook for the UK economy. With Brexit on the horizon (and the likelihood of a deal between the UK and EU being difficult to accurately estimate), investors seem to be pricing in potential pitfalls. This means that a number of retailers and other companies that derive a large proportion of earnings in the domestic market now offer wide margins of safety. This could allow an investor to buy low and sell high.
Of course, further turbulence could be ahead for such companies. But with low valuations and the prospects of a deal being improved after successful talks between the UK and EU in recent months, there could be significant investment opportunities on offer.
One effect of Brexit has been weaker sterling. This is largely due to investors becoming less optimistic about the outlook for the UK economy. As the date of Brexit draws closer, it wouldn't be a major surprise for the pound to weaken yet further. That would be especially likely if the chances of a deal became reduced as talks continued.
But weaker sterling could have a positive impact on the FTSE 100's price level. Since most of its constituents operate internationally, their financial performance could gain a boost from a positive currency translation. This may mean they are able to command higher valuations and could result in share price growth.
Even if Brexit goes smoothly and the pound recovers, the positive outlook for the global economy means that the FTSE 100 may enjoy a prosperous future. Certainly higher inflation may be ahead, with the US cutting taxes and increasing spending. However, interest rate rises looks set to be modest and are likely to be carefully communicated to avoid sudden shocks. As such, with the financial crisis well behind the world economy, the prospects for growth investors appear to be very bright.
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Peter Stephens has no position in any 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.