The Motley Fool

A market for the brave

For investors, these are troubling times.
 
Three years after the Brexit referendum, Britain seems no nearer to leaving the European Union in an orderly fashion. Chaos reigns. The stock market and sterling – both of which slumped in the wake of the referendum – are either flatlining or heading downwards, as they have been for months.
 
Also hit are the shares of companies exposed to re-nationalisation fears, of course. The more the Conservative party’s infighting and decision-making paralysis weakens its appeal to voters, the greater the fear of an incoming Labour government’s re-nationalisation agenda.
 
Water companies, gas and electricity utilities, Royal Mail: all have share prices that have been beaten down by precisely such worries.

Turbulence 

I don’t normally write about politics in these columns. Other commentators are better qualified, and other places more appropriate.
 
But where we are today is simply extraordinary. The Conservative Party – normally regarded as pro-business – seems intent on a ‘no-deal’ exit, which business groups such as the CBI deplore. Labour is hopelessly split on the question of a public vote. And a party that until just weeks ago didn’t even exist, has romped to victory in the European elections.
 
Meanwhile, Conservative party infighting over Europe has claimed the scalp of yet another prime minister.
 
Moreover, the dictats of parliamentary recesses and the Conservative party’s electioneering timetabling mean that any eventual successor will struggle to negotiate any alternative deal before October 31st.
 
Even assuming, that is, that Europe is open to negotiating any alternative deal in the first place.
 
And that’s before any consideration of how, with unchanged parliamentary arithmetic, any alternative deal will fare any better with MPs.

No easy choices

Roll it all together, and it’s difficult to see any immediate end to the uncertainty that is currently weighing on sterling and the UK stock market.
 
The result is a particularly awkward dilemma for investors. With uncertain prospects for a lot of UK shares, then until a satisfactory Brexit outcome is assured, foreign stock markets have obvious appeal.
 
But thanks to sterling being on the floor, overseas markets are a lot more expensive than they were back in early 2016.
 
Put another way, I’m certainly not adding to my overseas holdings right now – and haven’t been since the referendum.
 
And yet, as we all know, an awful lot of UK-focused companies continue to have a torrid time – just ask fund managers such as Neil Woodford and Mark Barnett, both of whose UK-focused portfolios have been getting a hammering.

Wait and see?

What to do? As I’ve written before, I’m usually not averse to buying into beaten-down sectors. Especially when battered shares prices mean that an already decent yield has become even juicier.

Rationally, re-nationalisation is probably unlikely: Labour has threatened it before, only to back off, once in power. Rationally, too, a no-deal ‘hard’ Brexit should also be unlikely: the economic damage it would cause seems obvious.
 
So I ought to be buying into those sectors facing re-nationalisation fears. And I ought to be buying into some of those shares hit hardest by fears of a no-deal ‘hard’ Brexit.
 
But right now, that seems very brave, as they say on Yes, Minister.
 
Instead, this could be time to sit on the fence. Assuming, of course, that there’s room on it, among all the politicians.

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Malcolm owns shares in Royal Mail Group, United Utilities, and Centrica. The Motley Fool UK has no position in any of the shares mentioned.