Brexit : If you currently hold stocks in British businesses and you’ve been following the Brexit negotiations, you are probably feeling nervous. There’s a lot of talk of doom and gloom. On the other hand, the low pound means that the markets are fairly favourable at the moment.
Should you sell up while you have the chance or, with the prospect of the pound falling further, might you be missing out if you do?
What does the long-term picture look like and could the immediate aftermath of Brexit be a good time to buy?
Brexit : Variation by sector
The first thing you need to take into account is that Brexit isn’t going to affect every sector in the same way. Some areas are likely to experience a significant negative impact – construction, for instance, relies heavily on imports from the EU which are likely to be disrupted over the first few months after Brexit day, especially if no deal is reached.
Others, like British cheese making, have an opportunity to make their brands grow stronger because they have never relied much on exports and will benefit from reduced competition in home markets. Some areas, like groceries and domestic fuel, always retain some stability because consumers have to prioritise them.
One of the most interesting sectors to keep an eye on is real estate. The low pound is attracting a lot of overseas buyers, and it’s also a good bet for local buyers if they plan to hold onto it for the long term. If Brexit leads, over the first few years, to the expected real terms drop in wage values, demand may drop, but this would, in turn, boost the rental market.
Short and long-term value
The best way to manage your stocks will also depend on your investment strategy. As you check everything you need to know about stocks this week, you’ll be focusing on what you might want to buy or sell in the immediate future. If you’re planning to hold onto some of those investments for several years, the associated risk profile will stabilise – as long as you can be confident that the business you’re buying into will remain operational, you can wait for the Brexit effect to diminish before you need to think about selling. With short-term investments, the situation is more complex.
The first thing most investment experts will tell you about volatile markets is that to exploit them successfully you need to stick with your tried and trusted strategies, resisting the temptation to increase your risk threshold because while there may be bigger opportunities for success, there are also bigger opportunities for loss. What you can do, however, is set aside funds for the point when you expect stocks to be most volatile and do your research ahead of time so that you are in a position to make informed decisions more quickly.
Brexit : Is now the time to sell?
There are two, possibly three points at which market volatility associated with Brexit could peak. The first of those comes when a deal is agreed or when it is confirmed that there will be no deal.
The second comes on Brexit Day itself. The third possible event would come with the announcement of any second referendum on Brexit (the results of that referendum, if it should happen, are unlikely to be a surprise, but would still be worth preparing for if you’re the sort of investor who chases black swans).
Any one of these could lead to a further drop in the pound creating a better selling opportunity than at present, but only if you get in ahead of everybody else who’s trying to do the same thing. Finding that sweet spot is the challenge as once everybody starts selling, values could drop fast.
Buying opportunities
The volatile periods around the occasions outlined above could also provide good opportunities to buy, but here the picture is more complicated. Stocks in sectors likely to be hit hard by changes after Brexit – especially in imports, exports and personnel – will probably continue to fall in value for some months or years after, and there is a risk of some companies going under so that stocks end up being worth nothing. When buying in this situation, it’s important to do careful research into the individual companies concerned. The ideal time to buy will be right before the upturn begins in earnest, as new market structures emerge, even if that’s not the lowest price point.
With complex pressures affecting other parts of the global economy at present, it’s difficult to predict exactly how the markets will develop post-Brexit but the most important thing you can do as an investor is to keep a cool head and be wary of political hype – the reality will be much more nuanced.
Brexit: The view of international business
Some foreign companies undoubtedly perceive Brexit as an excellent investment opportunity. Since the referendum ARM Holdings has been purchased by the Japanese internet conglomerate,
Softbank, a British cinema chain was bought by a Chinese company, the owner of AMC Entertainment, and British Airways has benefitted after an increased stake in the company was bought by Qatar Airways. Other deals have taken place, and confidence in the UK economy among foreign businesses is not showing signs of a steep decline.
It is generally accepted that post Brexit trade deals will be made by the UK with the US and the many other countries with which the EU currently trades. Australia is also waiting in the wings to make a trade agreement with Britain as soon as Brexit is finalised.
Other countries are sure to follow suit, and foreign investment into the UK is very unlikely to diminish markedly even if the UK and the EU cannot agree on exit terms by the March leaving date.
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