Will the FTSE 250 recover in 2023?

Mining and renewable energy expected to lead the FTSE 250 higher in 2023

By Raed Alkhedr | @raedalkhedr | 7 March 2023

FTSE 250 recover in 2023-20230307-062902
FTSE 250 expected to recover from the challenges it has faced in the past few years
  • The Drax stock rose about 136% over the last three years which supports FTSE 250.

  • The mining sector in the UK has succeeded in facing the challenges it faced.

  • Signs of recovery on the index are beginning to appear.

What do we expect for the FTSE 250 in 2023?

The past few years have presented multiple challenges for the British economy. The FTSE 250 has been impacted by Brexit to COVID-19 to the Bank of England’s rising interest rates, yet British stocks are beginning to show signs of recovery in the year ahead.

It remains possible that pressures on the FTSE 250 could continue due to its dependence on the British economy as most data reports claim that another recession is looming on the horizon.

However, global equities are starting to show some recovery with many investors believing that the worst is over thanks to unprecedented central banks' monetary tightening.

This could signify that the BoE will amend its monetary policy and could even to start to ease the pace of raising interest rates as it did last year. If this scenario ensues, the FTSE 250 should allow for promising investments in 2023.

What is the FTSE 250 index?

The FTSE250 Index was launched in December 1992 as a standard for measuring the health of medium-cap investments and small and growing enterprises in the United Kingdom. It includes 259 companies listed on the London Stock Exchange and is generally considered more volatile than the FTSE 100.

Many investors turn to the FTSE 250 as a standard for reflecting upon the general situation of the British economy due to its in-built diversification and broad coverage of British companies, which make it a vulnerable indicator of factors impacting the economy of the United Kingdom. Between 1992 and 2022, the index generated a total annual return to shareholders of 10.3%.

What’s been challenging the FTSE 250?

The FTSE 250 is known as a vulnerable indicator of any shocks that impact the British economy, which is why the performance of this index has been volatile considering the many sociopolitical factors that have been affecting the United Kingdom in the past few years.

In 2016, Britain’s public vote for Brexit (Britain’s exit from the European Union) caused the index to decline due to fears that business activity and companies' performance would consequently suffer in value. This was enhanced in 2020 when Brexit proceedings created continued challenges for the economy and supported signs for an incoming recession.

Following this, British companies were put under more pressure as the Bank of England was one of the first central banks to resort to raising interest rates in an attempt to control rising inflation. COVID-19 has also made its mark on globally economies which resulted in high volatility across the entire indices sector.

Although these challenges persist, there are indications that many global stocks are starting to rebound to pre-pandemic levels which could trigger amendments to British policies and enable the FTSE 250 to reverse its downward trends. However, it is still a possibility that the BoE will continue with these policies in alignment with expectations that the British economy will continue to stagnate.

Which stocks are gaining value in the FTSE 250?

1.The Drax Group plans USA investment.

When most stocks in Britain suffered from declines and increased risk aversion, Drax Power Generation Group showed a strong performance.

Statistics indicated that the company’s shares rose by about 136% over the past three years, even after the 2020 collapses following COVID-19’s outbreak.

One of the factors that supported Drax’s stock value was the rise in demand for renewable energy. Many attribute these rising costs due to the ongoing conflict between Russia and the Ukraine, which raised concerns about energy supplies in Europe and consequently pushed gas prices to record levels.

In 2022, Drax’s net revenue reached £731 million, up by 83% compared to expectations of £699 million, and its total profits increased by 11.7% as well.

Looking ahead, the Drax Group plans to invest up to $36 million in the USA in order to support renewable energy, on top of providing nearly 7% of Britain's electricity through its vast network of power stations.

2. Playtech continues to diversify.

Playtech has been thriving over the past few years, with stocks recording gains that reached 143%. Many expectations indicate that the company continue to provide a strong performance moving forward.

2022’s fiscal period has proved to be a busy year for the company. Gopher Investments, its second-largest shareholder, completed the long-awaited purchase of Finalto's financial services division for $250 million and Playtech has also refocused its business by selling both casual and social games.

3.Frasers stock rises over 100% in 3 years.

Despite challenges facing the retail sector, Frasers’ stock has risen more than 100% in three years. This surprised many investors as the decline in consumer confidence and the UK’s high inflation were expected to put pressure on the stock's performance.

Frasers plans to buy back up to £80m of shares in a new share boost initiative. The company expects profits of up to £500m this year, despite challenges facing its local market.

It has also used the relative strength of its balance sheet in recent years to collect distressed assets that slumped in the retail sector during the pandemic.

4.Blackrock World Mining Trust shares rise by 115%

The company's shares have risen by 115% over the last three years, and its market value has exceeded more than £1 billion sterling. In 2022, the mining company posted a strong performance as commodity prices rose.

At the beginning of 2023, the stock reached its highest level at $750. Despite recent declines, it is likely to rise again if quarterly profits for the coming period show improvements in the company's performance.

5.Bank of Georgia Group shareholders see 97% return in 2022.

The Bank of Georgia Group is a UK-based holding company that includes corporate and retail banking services.

During 2022, their stock rose by more than 90%, and in three years the stock has risen by 76%. Earnings per share rose last year by 55%. The Group rewarded shareholders with a total return of 97% last year.

Their revenue has increased 43% in Q3 year on year, with a total income rising to $288.9 million.

Which sectors will support the FTSE 250?

1.The British mining sector continues to weather challenges.

The mining sector within the UK has managed to weather strong challenges that the index has faced since 2016. Some of the major factors supporting the sector are China’s uneven economic growth and the rise in global commodity prices. Market reports show mining company balance sheets have never been stronger.

2.The renewable energy sector shows dramatic growth.

Investors are increasingly confident in the renewable energy sector, especially with the tendency of global governments to invest and support such sectors. As for the FTSE 250 index, this was one of the sectors that supported the index the most as it faced challenges.

Out of all the energy companies listed, the Renewables Infrastructure Group is one of the top renewable energy companies within the FTSE250 index with a diversified portfolio of over 70 wind and solar farms across the UK and Europe. This portfolio has the largest generation capacity of any London-listed renewable energy investment firm. The group also enjoys a strong public budget that may support the sector in the coming period.

Signs of recovery on the index are beginning to appear