We’ve not crossed the political Rubicon just yet, but it appears as if another British general election is just around the corner. It’s hard to remember a government in such a state of extreme paralysis as this one. Its decision to purge 21 Tory MPs this week wiping out Boris Johnson’s majority in the Commons and leaving him with a lame duck premiership.
Labour might not be taking the bait yet as it prioritises legislation to avert a no-deal Brexit, but it appears a matter of time before it acquiesces to Johnson’s call to go to the country. The government defeats in Westminster are mounting and the chaos in Downing Street is rising (just today the PM’s brother Jo Johnson resigned from cabinet citing conflicts “between family loyalty and the national interest.”). Something has to give…
Avoid the pound
Now the pound’s clawed back some ground in recent days following the passing of the Benn bill to block a disorderly Brexit. Indeed, it’s staged its best two-day performance in almost a year since the Commons started debating the bill on Tuesday.
But of course there’s plenty of scope for it to fall again should an election be called. A Boris Johnson majority would likely guarantee a no-deal EU withdrawal. A Jeremy Corbyn majority would spook markets who consider him to be the ‘anti-business’ candidate. And a hung parliament would prolong the deadlock of the past three years.
So how can share investors play a falling pound? By investing in companies which report in dollars, euros or, indeed, any other foreign currency which receive a profits boost from a sinking sterling. Alternatively you can buy into a FTSE 100 tracker fund and ride likely rises in a stock index that’s chock-full of firms which account non-British currencies.
Go for gold
It’s also a good idea to get some exposure to gold as an election approaches. The flight-to-safety asset surged to fresh six-year peaks around $1,560 per ounce earlier this week and is back on the charge again on Thursday following some light profit-taking.
There’s numerous ways to grab access to gold. You can buy the physical metal itself or buy into an exchange-traded fund (ETF) which follows movements in the price. I reckon, though, buying up precious metal producers such as Polymetal International or Fresnillo, or an ETF comprising a variety of gold stocks, is a better bet. The reason? The additional sweetener of dividend payments.
Play the safe havens
The uncertain political (and economic) landscape means demand for so-called safe haven stocks is likely to hot up too. And the FTSE 100 is jam-packed with lifeboats for scared investors.
Take Unilever and Reckitt Benckiser for example, household goods manufacturers which provide tremendous strength by diversification (via product categories and geography). Or how about United Utilities and Severn Trent, firms whose services are essential regardless of who claims the keys to Number 10? Investor demand for BAE Systems is also likely to pick up given its leading position in the defence sector, that classic safe haven in troubled times.
The answer is clear. Don’t sit in silence and try to wait out the current political turbulence. There’s plenty of ways to make money from an upcoming general election.
