NAVIGATING THE BREXIT SQUALLS

WHAT’S HAPPENING?

A nEW us president, new vaccines and new market highs – but we have one other issue in the uK to concern us.

Brexit – deal or no Deal. i am ignoring all the tiresome politics and just looking at the economic impact in either case and its investment effects.

WHY DOES IT MATTER?

FiRsT, Brexit will affect the value of the economy.

However, the difference in the type of deal agreed – or in fact no Deal at all – will have strong ramifications.

if either party decides to have a toddler tantrum and throw their toys out of their respective euro-prams, there will be some serious consequences. This will initially affect confidence in the strength and development of the economy, and consequentially the value of the pound against both the euro and the dollar.

Although it would be seen as negative for the uK domestically, many of the FTsE 100 companies have very significant overseas earnings, and as we have seen before, a weakening pound can push up the value of the index, perverse though that may seem.

However, let’s also think about what could happen if our toddlers find themselves cooing in sweet agreement (in whatever language). The initial effect would be to improve the confidence. in this case we could very likely see the pound rise against those leading currencies from where it is now (around $1.33) up to $1.40.

To give you some perspective, it was around $1.50 at the time of the European union referendum.

As the pound would rise, then those same FTsE 100 overseas earners would be hit, but the rather more domestically-focused uK index, the FTsE 250, could go up as investors see greater economic opportunity for those companies.

Actually, rather than necessarily inspiring enthusiasm, i suspect i t would be as much a rally caused by relief rather than anything else.

WHAT SHOULD I DO?

HERE is one of those moments of personal choice. if you think that we are not going to see a deal, you could buy one of the FTsE 100 overseas earners and see how the falling pound can increase those prices.

However, perhaps you are more of an optimist, as i am, in which case some investment in domestic companies would be more appropriate. if we get a Brexit deal, you will very likely hear a collective sigh of relief from many industries includi ng car manufacturers and f i nancial services, for example.

ANY SUGGESTIONS?

iF you think there will be a Brexit deal then you could buy an ishares or Vanguard FTsE 250 ETF, a f und which tracks the index.

if, however, it’s a no Deal for you, then a FTsE 100 ETF would give a broader exposure. or for a single company – think about the spirit maker Diageo – at least you could drown your sorrows.