In a very recent article, I explained why the FTSE 100 could come under pressure in 2020 should the pound extend its recent surge, an ascent built on the near-term Brexit clarity afforded by the Conservatives’ emphatic general election victory.
The ink was barely dry on my piece however, when reports emerged that have shot down my earlier optimism. The pound is backpeddling once again on Tuesday morning, and some of those UK-focussed stocks which soared at the tail-end of last week are falling too.
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So what has happened? Well, in a shock move designed to sort the Brexit issue once and for all, Johnson will reportedly attempt to write the withdrawal date of December 31, 2020 into law. This is the day on which Downing Street hopes the country will exit the transition period and have a trade deal with the European Union all sewn up.
No-deal back in play!
By passing an amendment to his withdrawal act, the only two scenarios that’ll subsequently be on offer will be to get intricate trade talks finalised in just 11 months, or Britain embarking on a disorderly Brexit at the end of next year. And many market commentators believe the chances of the former being executed on time rate from slim to none.
The beauty of Johnson’s thumping Commons majority is that he can always change the law again depending on the progress of trade negotiations and his desire to avoid a cliff-edge Brexit. What last night’s reports show is he’s determined to get the issue dealt with next December by hook or by crook. “Get Brexit Done” seems not to be an empty election mantra for Number 10 then.
It’s important that investors need to do their utmost to protect themselves and their investments in the new year, one in which businesses could continue delaying investment and the share prices of UK-focused stocks start trending lower again as that end-of-year cut-off approaches.
Banks in bother
Britain’s banking sector is one industry which has come under increasing pressure in 2019, with revenues flatlining at best and the number of bad loans on their books ballooning. And so it’s unsurprising to see some of the country’s largest listed lenders like Barclays and RBS fall again following that Brexit news, led by Lloyds, which is down 5% at pixel time and has lost almost all of its post-election gains.
The Footsie banks are still cheap, each of the three above trading on forward P/E ratios below the value benchmark of 10 times, as well as boasting big dividend yields above 5% for next year. But their low ratings are a reflection of the unforgiving political environment and consequently patchy economic outlook, two themes that look set to remain in play in 2020.
For these stocks then, the risks continue to outweigh any potential rewards and I plan to continue avoiding them like the plague.