INVESTMENT NO-NOS

SHARES OF CARMAKERS

Concerns about the environmental impact of diesel and petrol — and plans to ban such fuel — have put many car manufacturers under pressure. “We’re wary of auto-stocks around the world because of the pressures on that sector,” said Andrew Milligan of Aberdeen Standard Investments. “From a European investor point of view, one of the big issues they need to think about in 2019 is diesel and slowing car sales.”

LUXURY BRANDS

Barclays is not that keen on US consumer discretionary stocks (the stocks of companies which produce or sell goods and services that people want — but don’t necessarily need).

Davy, too, is cautious about consumer discretionary stocks. “We have cut exposure to consumer-discretionary stocks, such as luxury brands — as these are the things which people stop buying when things get slower,” said Alan Werlau of Davy.

EUROPEAN SHARES

European shares may not deliver the best returns this year. “EU companies have not been creating good profit growth recently,” said Milligan. “Then, on top of this, there are worries about Brexit and Italy [over its populist government]. Europe has certainly seen a big growth slowdown [in its economy] in recent months. European equities is not the most attractive of markets. One thing to watch this year is how well will the populist parties do — and what that will mean for the monetary union and the European economy.”

FTSE 350 AND BREXIT

Uncertainty around Brexit continues this year — with investors watching if, and how, Britain will leave the EU. Investors in domestic-oriented British companies are likely to be badly burnt regardless of whether the UK Government can secure a deal with EU on Brexit or not, according to Werlau. “If you need to be in the British stock market, the Ftse 100 is the only place to be,” said Werlau. “Avoid the Ftse 350 or domestically-oriented British companies as these are likely to get hit more given the weak sterling.”

There are a number of possible Brexit scenarios that could unfold. One involves a deal between the UK and the EU on Brexit, another involves the failure to secure such a deal, and another scenario is where there is a second referendum on Brexit in which the UK votes to stay in the EU. “If a deal happens, the market will probably rally,” said Werlau. “Sterling will be stronger and people will be happy. That would be a relief — though short-lived. A lot of the uncertainty around Brexit has slowed business sentiment and hurt consumer confidence. Any euphoria that will come [after a deal] will eventually wear off. I wouldn’t expect a strong sustainable rally of sterling or of stock markets.”

Domestic-oriented UK companies would suffer the most in a no-deal Brexit, according to Werlau. “If there’s no deal, sterling will probably get weaker and it will stay weak for a while,” said Werlau. “The Ftse 100 would probably be okay and benefit from the weak sterling. Small- and mid-sized UK companies would probably get crushed at this stage. If we had a second referendum where the UK votes to stay in the EU, you’d get a rally. Sterling would firm up against the euro and the dollar.”