The B word. It has been a thorn in the side of the UK market and the UK (and likely even Global) citizen for nearly three years now. It has been accepted that we have an extension up until a January 31st deadline, now giving the UK Government 3 months to work on a deal. But will this negatively affect markets or will we see sterling rally on any sort of deal or no-deal situation?
Ultimately, the answer is, we just don’t know. But we can prepare ourselves by looking at the past and allocating sensibly to be diversified enough across asset classes to limit downside and capture upside if possible.
The Long Term/Historical view
Despite much political uncertainty, Brexit negotiations between the UK and the EU, and associated events, have so far failed to trigger a significant stock market crash. In fact, many UK stocks have continued to make gains, albeit with some hiccups. This is due to a number of global issues including trade wars, growth downgrades and bond yield-curve inversions.
Take a look at the chart below and we can see how the FTSE 100 (blue) and FTSE 250 (red) has moved over the period since the initial referendum and up until the recent Supreme Court ruling against Boris Johnson. In the immediate aftermath of the referendum the FTSE 100 and the FTSE 250 fell 9% and 12%, respectively.
The biggest drops in the value of the UK indices came firstly in February 2018 and again between October and December 2018. Both events were unrelated to Brexit and caused by concerns around the US/Chinas trade war, the Federal Reserve’s approach to interest rates and a global growth downgrade by the IMF. Although we haven’t reached the giddy heights of close to 8000 on the FTSE 100 seen last October, since the referendum on June 23rd 2016, the FTSE 100 is up 13.75%, whilst the FTSE 250 is up 14.2%.
Markets certainly do not like uncertainty. The FTSE 100 index of Britain’s biggest companies has certainly been rattled at times, with market prices swinging on several twists and turns during the Brexit process. Yet, in general, the UK stock market has remained resilient, despite an uncertain outlook. So how do we deal with this uncertainty?
We have three strategies. To find out more, get in touch!