The UK left the European Union at the beginning of this year. There are now just four months left for the two parties to agree on a free trade deal. The transition period, which kicked in at the end of 2019, ends at the beginning of 2021. With time for an agreement fast running out, the chances of a hard Brexit are rising. As such, now could be a good time for investors to consider which UK shares may be most affected by a messy divorce.
Brexit impacts
At this point, it isn’t very easy to tell which companies will benefit from Brexit and which corporations will suffer.
Current forecasts suggest the UK economy as a whole will suffer in a no-deal scenario. On that basis, it seems reasonable to suggest that most UK shares will feel the fallout to some extent.
However, some companies could benefit from a messy divorce. Volatile financial markets would be good for financial services provider IG Group.
The company is already riding high following 2020’s stock market crash, which resulted in surging revenues and profits at the trading house.
Another company that may benefit from the uncertainty is the UK’s largest listed law firm, DWF.
The firm may benefit from increased demand for legal services due to the increased complexity of dealing with European businesses after a no-deal Brexit.
International UK shares
Another way to protect your portfolio from the fallout of a no-deal Brexit may be to buy globally diversified companies.
UK investors have plenty of options to choose from here. More than two-thirds of the FTSE 100’s profits come from outside the UK. This means many of the index’s constituents rely on overseas markets. Some examples include AstraZeneca and BP.
These markets are unlikely to be affected by Brexit. As such, the UK shares with exposure to these regions could be attractive investments.
That said, research has shown that trying to time the market and predicted macroeconomic events is not a sensible investment strategy. With this being the case, trying to pick which stocks may benefit from Brexit might not be the best course of action.
Instead, I think investors should concentrate on buying high-quality blue-chip UK shares at attractive prices. Some of these companies may face uncertainty in the near term due to Brexit. However, in the long run, history tells us that this is by far the most sensible strategy for building wealth.
The bottom line
So, while it might seem tempting to try and build a portfolio around Brexit, doing so may not be the best long-term investment decision. There’s no guarantee any company will benefit from a no-deal, but there’s also no guarantee any business will suffer either.
Therefore, the best strategy for investors could be to stick with the tried and tested method of buying high-quality companies for the long term.
