It has been impossible to ignore the political situation in Britain since June 23 2016. This may seem obvious for the average Briton, but it’s especially true for investors. Political uncertainty is playing a huge role in both domestic and global markets, which is why I’m paying close attention to the political situation in the second half of this year.
As expected, Boris Johnson was announced as the official victor of the Conservative leadership race on July 23, beating Jeremy Hunt by a decisive two to one margin. He takes the leadership in a time of deep political crisis and hasn’t softened on the October 31 Brexit deadline, so we’re in for an interesting few months after he takes residence in 10 Downing St.
Recent polling has many sweating over the possibility of a general election being called, and the result that could follow it. Investors loathe uncertainty, but Britons aren’t alone. Political shifts have played an outsized role in moving global markets in recent years. This uncertainty at a macro level is starting to make an impact in the form of slumping business investment and confidence, especially in the developed world.
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Share prices have been volatile. HSBC (LSE: HSBA) stock has dropped 9% year-on-year and the company is battling higher credit losses over the past year as its smaller business clients suffer from apparent Brexit anxiety. Shares of HSBC dipped after the leadership announcement, following the trend of the FTSE 100 index.
HSBC and other top British banks are set to publish half-year results in the coming weeks. The stock had a price-to-earnings ratio of 12 as I write, which comes in at about the FTSE 100 average. It also boasts a 6% dividend yield, which is above average in comparison to its FTSE 100 peers. Johnson’s hard-line Brexit position has me feeling anxious, but I like HSBC’s price right now.
The largest bank in Britain had taken a seemingly anti-Brexit position in an early 2019 marketing campaign and even through its official Twitter account. And is that a surprise? Many investors fear that a no-deal Brexit could plunge the UK into a technical recession. No-deal had seemed highly unlikely, even after the shocking June 2016 result, but the potential for a disorderly exit from the EU has increased ahead of the revised October 31 deadline.
How I’m playing political strife right now
Warren Buffet’s famous line may come to mind in this situation: “Be greedy when others are fearful.” This has been my approach over the past decade, and I believe a little optimism is in order as we near the autumn Brexit deadline. British and European leaders have reaffirmed their commitment to negotiating a deal that avoids the worst-case scenario, even if it means pushing the deadline back further.
I’m targeting stocks like HSBC ahead of the publication of half-year results for Britain’s largest financial institutions. I’m willing to bite on the Boris Johnson dip, and I remain optimistic that a no-deal Brexit will ultimately be averted.
