The investor terror which prompted the horrendous October stock market washout has evaporated of late. A benign November has led into a strong start to December, and many will be hoping that this could lead to a ‘Santa Rally’ to close out 2018.
The FTSE 100 is down 8% in the year to date and so an upbeat end to the year would be most welcome for embattled share investors. Stock pickers shouldn’t get carried away, though. There remains a host of geopolitical and macroeconomic perils that could cause another year of heavy reversals across global stock markets in 2019.
(Political) anarchy in the UK
The biggest cause of market angst in the UK remains the Brexit saga and what this will mean in the near-term and beyond.
Prime minister Theresa May’s agreed deal with the European Union may not be perfect but it has been given the stamp of approval from many (even if not that many MPs), most notably the Confederation of British Industry, who had been fearing a more painful and economically-destructive exit from the continental trading bloc.
A week is a long time in politics, to use a well-worn phrase, and a lot could still happen. But it looks as if Number 10’s plan doesn’t have a cat in hell’s chance of winning Parliament’s approval when the vote finally comes up on December 11. And then a broad possibility of options could be on the table.
A second attempt to smuggle the deal through the House of Commons. The acceptance of a no-deal departure from the European Union. The possibility of May exiting and the calling of a second referendum, or even the drastic step of enacting a general election, to solve the political impasse.
It’s not just Brexit
The latter scenario opens a whole new can of worms which many believe could be just as damaging as a potential Brexit. Indeed, if a general election were to be held and then won by Jeremy Corbyn’s Labour Party, it would send shockwaves through financial markets.
Utility companies like Centrica and Severn Trent as well as rail companies such as Southeastern operator Go-Ahead Group would be big losers under a Corybn government as their services come under the threat of nationalisation. Bigger problems would almost certainly be on the horizon for the domestic economy, though, given Labour’s plans to make private companies give a 10% share of equity to their workers.
Continental concerns
But political strife at home is not the only thing for investors to chew over in 2019.
For the European Union, Britain isn’t the only enfant terrible right now, with the bloc throwing out Italy’s draft budget for 2019, a plan which would see the country’s deficit rise. Tension remains high between the European Commission and Rome’s populist coalition. A solution to the crisis is not yet in sight, meaning that the episode — and the threat of disciplinary measures against the Italian government — could drag well into the new year.
In this tense political environment, both in the UK and beyond, it’s clear that we as investors need to be particularly careful in 2019. The worst way to react would be to pull up the drawbridge, though. Stock investing remains a very attractive way to make your money work for you, and there remains a galaxy of great companies I’m confident should continue to thrive next year and beyond.
