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Which stocks should you buy to avoid a hard Brexit?

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We finally know that we’re facing a hard Brexit. So which sectors should we be avoiding in our investing decisions, and which ones should we go for?

There’s surely more risk facing our banks right now, as HSBC Holdings has already said it will be moving some of its investment banking jobs away from the UK to Europe. I reckon there will be more UK jobs lost in the sector than we’d first feared, and that’s likely to spook investors.

Any falls in house prices should put pressure on mortgage lenders too, so if you don’t like uncertainty, you might want to stay away from banks altogether.

Our housebuilders have already faced a pummelling, although they’re starting to recover as investors are realising that the severe housing shortage we face in the UK isn’t going to go away when we leave the EU. Shares in Taylor Wimpey and Persimmon, for example, are almost back to their pre-referendum levels.

Life insurance, and any industry that depends on consumer confidence and domestic spending, could be in for a few tough years too.

I do think most of the bad news is already in the share prices in these sectors though, and the brave could pick up bargains — if they can stand a little volatility. Of the banks, HSBC seems like an obvious one with most of its focus well away from the UK and Europe, but the smaller challenger banks like Virgin Money could be good picks.

Play safe?

For safer sectors, I see two approaches. One is to go for truly global business that aren’t affected by our local politics. Big oilies like BP and Royal Dutch Shell, for example. Or pharmaceuticals and consumer products giants like GlaxoSmithKline, AstraZeneca, Unilever, Reckitt Benckiser.

I also think BAE Systems is looking good, with its worldwide sales well away from the EU, and the lower pound making its export prices look more attractive. Rolls-Royce has been through a bad patch, but cheap Sterling should help its recovery too.

Alternatively,  you could go for UK-only businesses that should do well regardless of what happens at our borders. Utilities companies are obvious ones, like National Grid and SSE. But I also think infrastructure and services firms could do well, though costs will be higher due to more expensive imports.

Miners have been recovering well, and will surely be unaffected by Brexit — Rio Tinto shares, for example, have more than doubled in the past 12 months. And on our own shores we have Sirius Minerals, whose future potash exports have been made to look a lot cheaper as the pound has slumped.

Normally I’d also suggest supermarkets, like Tesco and J Sainsbury, except they’re facing their own battles against Aldi and Lidl — but it will be interesting to see what effect Brexit has on those two interlopers.

I’ll finish with a sector I’d definitely avoid. I can’t see the travel and leisure business coming out of this well, so I’ll be steering clear of International Consolidated Airlines, easyJet, Thomas Cook, and the rest of that industry.

But overall, I really do think we’re past the bottom of the Brexit pessimism, and now that the uncertainty is starting to recede, I’m even more confident that buying UK shares for the long term is a great idea.

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Alan Oscroft owns shares of Sirius Minerals. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, BP, HSBC Holdings, Reckitt Benckiser, Rio Tinto, and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.