The world’s eyes were on 10 Downing Street this morning, as Boris Johnson secured his long-anticipated victory as leader of the Conservative party and the UK’s next Prime Minister.
Defeating Foreign Secretary, Jeremy Hunt, the pressure is now on for Mr. Johnson to deliver Brexit before the 31st of October. Can the man who famously positioned himself as the figurehead for Brexit (and voted against May’s withdrawal agreement twice) finally achieve a clean and (ideally) amicable break?
How will Brexit affect investments?
A Boris-Brexit is looking to be fast and furious, a stark contrast to Theresa May’s slow and not-so-stable attempt. He has made some bold claims to take the UK out of the EU by Halloween, even if it means leaving without a deal. Boris Johnson certainly seems confident that he is the leader to end the period of “kicking the can down the road”. But is this optimism reflected in the markets?
David Semmens, Head of Investment Strategy, answers your questions about what a Boris-led Brexit means for investors.
How will Brexit affect UK businesses and my investment plan?
“The type of deal negotiated will have implications for British business, employment, property and lending, shaping the nation’s investment landscape. Whether or not a deal can be secured is likely to shape how our relationship with Europe and the world evolves over the coming months and years. However, right now finding an end to the political standstill should provide some much-needed clarity for UK shares and bonds as well as those looking to invest in expanding businesses.
“Until we move on from Brexit with a workable solution, the UK markets are likely to continue lagging”
“If (and this is a huge if), Johnson can truly deliver a deal which both Houses of Parliament and the European Union agree to, then British business can begin to plan ahead for life outside the EU.
“However, the uncertainty surrounding a no-deal Brexit will be unlikely to see short term calm as businesses increasingly consider whether they need to move abroad to continue trading within the EU. This is today reflected in the low valuations of the top 100 largest UK companies, despite the fact that about 70% of FTSE-100 revenues are actually sourced outside of the UK1. Knee-jerk reactions and sentiment rather than solid facts will most likely drive the stock market over the coming months; and overreactions are to be expected. This is likely to increase as global trade concerns are also featuring more prominently in the media”.
“On the bright side, investors are looking towards the “continuity agreements” which have already been agreed with Norway, Iceland, some Caribbean countries, Israel, Switzerland and others. There are glimmers of promise here for investors and we may see pre-emptive market movements in the sectors which are affected (such as bananas and sugar cane). Overshadowing these arrangements are the potential Free Trade Agreements which could be agreed with the US, Japan and EU. Here at Wealthify, we are keeping a close eye on these updates and market reactions”.
Can I protect my Stocks and Shares ISA, Junior ISA or General Investment Account?
“When it comes to shares, Brexit represents both considerable opportunities for investors, but also significant risks. As we do not have clarity on the direction that a Brexit deal will take, we are not making changes to the amount of UK shares held by customers for now and continue to follow our long-term strategic plans, unless markets provide opportunities or the news significantly changes our expectations. When we create and manage investment Plans, we look to avoid taking unnecessary risks, only taking positions that we believe offer long-term value with an attractive balance between risk and reward.
“It is always sensible to have a plan constructed from many different investments (as Wealthify customers do) acting as a buffer if one market sector or region begins to fall. Known as ‘global diversification’, this approach helps to spread the risk and create a more balanced Plan.
“However, for those DIY investors who may be holding a lot of shares in UK companies, it could be a good idea to consider whether you need to include more global investments or seek the advice of an expert over the coming months. Of course, there are always risks when it comes to investing, and you may lose money, but there are ways to reduce the chances of that risk which can typically be done by having a global mix of shares and bonds rather than an overconcentrated portfolio. For those who are heavily exposed to UK shares, it could be a bumpy road ahead.
“It’s events like Brexit when customers are most relieved to have globally diversified Plans, built to withstand pressure”
What impact will Boris’ Brexit have on the pound (GBP)?
“As Boris Johnson himself has indicated, his leadership will spark an initial jolt to the economy, and we can naturally expect to see some volatility as the markets react to the new regime. As was the case around and after the Brexit vote, the impact will most likely hit GBP the hardest. The British pound has been steadily decreasing in value since the Brexit vote was announced at the start of 2016
“Expect the pound to drop initially”
“Investors with a high exposure to GBP might wish to reduce some of their exposure. As the pound hits its historical low, some investors take this opportunity now when sterling is relatively cheap”.
Investment outlook
Here at Wealthify, we have a long-term approach to investing and are not making any sudden changes while there is still so much uncertainty.
Today the probability of a no-deal Brexit has grown, the GBP continues to depreciate and the UK markets remain shaky. Signs point to dips in UK-orientated companies, especially small companies if we see a hard Brexit. However, once Britain leave the EU (assuming it does, even without a deal), there should be some clarity for businesses, which could give investors more confidence in the UK market. This silver lining could give the markets a boost, in the months after they initially react to the news.
With Boris Johnson comes a new cabinet, a new chancellor and perhaps a fresh way of thinking. As a staunch Brexiteer and ambitious optimist, investors are looking to the new Prime Minister to show that there is some light at the end of the Brexit tunnel.
1: https://www.londonstockexchange.com/prices-and-markets/stocks/ftse100/2018report.pdf
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
