I once read a book predicting “The great stock market crash of 1989” or some year around then. I don’t remember exactly, but it didn’t happen and the author looked a bit silly.
There are two things we can say for sure about stock market crashes, which might sound a bit contradictory. One is that you can’t predict stock market crashes. The other is that the only way to predict stock market crashes is to constantly predict them on the assumption that one day you’ll be right.
Winter disaster?
What of conditions as we head into the winter of 2019? From where I’m sitting, the prospects of a disastrous Brexit followed by a years-long recession have never seemed more likely. Prime Minister Boris Johnson appears to be arguing for a new agreement with our EU neighbours by holding a gun to his own head: “If you don’t agree, I’ll plunge the UK into economic disaster, just see if I don’t.”
We’ve seen global stock markets falling, with the FTSE 100 leading the way with its biggest one-day fall since 2016. Though that’s actually no big deal in itself, it’s adding to fears of a forthcoming proper crash.
If the UK blunders out of the EU with no Brexit deal, and we suffer the years of economic contraction and job losses that most of Britain’s business leaders are expecting, we’re likely to see the Footsie heading into a real tailspin crash, aren’t we?
Actually, no, I don’t think that’s likely at all. The main reason is that the great majority of the constituents of the FTSE 100 are really not very dependent on the UK economy. Let’s look at a few of the biggest.
Global list
Royal Dutch Shell is tops by far, and it’s a major global oil company that’s unlikely to even notice what might happen within these isles in the years ahead.
Next is HSBC, and though it’s a bank that has a UK high street presence, the vast bulk of HSBC’s revenue and profit comes From Asia – notably China and its economic sphere. That brings up the Trump-China trade wars, but I think it’s looking increasingly likely that that threat will disappear in about a year’s time.
BP is the third-largest FTSE 100 company, and we’re back in big oil territory again. That’s followed by AstraZeneca and GlaxoSmithKline, both huge global pharmaceuticals companies that are largely independent of any local economies.
Then, not in any specific order, Diageo, Unilever, Reckitt Benckiser, British American Tobacco, all purveyors of numerous global brands across a multitude of global markets. It’s not until we get to 12th place that we find Lloyds Banking Group, the largest that’s genuinely UK-focused. But Lloyds is a relative tiddler compared to the big companies, and its market cap of £36bn is dwarfed by Shell’s £185bn and HSBC’s £122bn.
Good value
What of the FTSE 100’s overall valuation? I see dividend yield as being probably the best marker, and according to the most recent Dividend Dashboard from AJ Bell, we’re looking at a significantly higher than average overall yield of 4.5% this year, with a predicted 6.5% growth in the index’s dividends set to deliver an all-time high of £91.2bn of cash for shareholders’ pockets.
A stock market crash in 2019? I don’t see it, not with the FTSE 100 packed with so many cheap shares.
