0936 Tuesday 18 December 2018

When asked what the markets would do, J.P. Morgan simply replied “They will fluctuate”. That statement was as true at the turn of the 20th century as it is today with Brexit being one of the dominant factors in the global marketplace.

Since the build-up to the original referendum in 2016, Brexit headlines have had a strong effect on the stock market and volatility has increased as the March ’19 deadline approaches. The reason for the amplified fluctuations is tied to just one thing, the market hates uncertainty; and if there is anything that we can be certain on with Brexit, it’s that uncertainty will remain until the ink is dried on whatever outcome we end up with.

In the past few weeks, the GBP and FTSE stocks have been on a roller-coaster ride as Theresa May headed backwards and forwards to Brussels and other European capitals to seek amendments and assurances on the ill-fated deal that was originally passed. We’ve seen a historic moment with the Conservative Party being held in ‘contempt of Parliament’ by not revealing the full conclusion of the Attorney General’s report on the Brexit deal. And we’ve also seen the PM survive a vote of no confidence from within her own party (and with May announcing that she would not be standing as leader in the next General Election, is the only assurance that the British public has received).

That’s what was; now let’s talk about what will be…

While we know that everything is fluid and not set in stone, here is a brief timeline of what’s on the table at the moment:

• House of Commons Christmas Recess: 20th December

• House Returns to Parliament: 7th January

• Brexit debate in Commons Resumes: 7th January

• Meaningful Vote: The week commencing 14th January

These are the dates that are currently on the table and have been formally announced, however as alluded to above, these could all change at any given moment due to a number of factors. Let’s not forget that when the Meaningful Vote was originally scheduled to take place on 11th December, just minutes before the vote was officially postponed, a Downing Street spokesperson insisted that it would be taking place. Another factor that could drastically change the timetable is the political had grenade that Jeremy Corbyn holds in the form of motion of no confidence. In the Commons yesterday, Corbyn referred to the motion in his criticism of May, but stopped just short of pulling the pin.

All of the previous headlines and the ones still to come, have had and will have an impact on the UK economy either in the form of currency or equity or both. So what is an investor to do in such a fluid marketplace? …Well, before we touch on this, I would like to reiterate that this article is an opinion piece and should not be taken as investment advice and that past performance is not necessarily an indication of future performance… We have seen how certain sectors have reacted to GBP fluctuation in the past few weeks. For example, a weaker pound has seen UK focussed homebuilders and contractors suffer and a stronger pound has seen miners and pharmaceuticals rise. This is generally due to costs in importing supplies and the location of the consumer, i.e. if a homebuilder is importing supplies from outside of the UK and building property within the British isles, a weaker pound theoretically costs them more to receive less, therefore hitting their bottom line, whereas if a miner is exporting goods globally, a stronger pound reaps more profit. While using such a backbone for a trading strategy would require a constant eye on the news as well as the market, there is another outlook a trader might hold. There is currently a bullish view of the market that implies that in general, stocks are cheap. Brexit, trade wars and other global tensions have weighed heavy on global equity in recent times and some blue sky traders see this as an ideal time to ‘buy on the dip’.

In conclusion, uncertainty is in the mindset of many investors at the moment, but that does not mean that there is not plenty of opportunity to be found and Mr Morgan’s reply is as pertinent as ever.

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