Since the Brexit referendum in June 2016, we have been living in uncertain times. Or rather, as average investors, we are possibly living in someone else’s interesting times. On a daily basis, we find ourselves caught up in a drama over which we hardly have any control.
Overall the UK has a healthy economy. However, the Brexit discourse that has dominated our lives for over three years has left that economy, including the fate of the pound and many investor portfolios, in uncertainty. Today, I’d like to discuss what I’d do as a long-term investor amid the current noise of the Brexit timeline that is upon us.
Deal or no-deal?
On 17 October, the government agreed to a last-minute deal with the EU. However, only then began the real work to convince lawmakers to get it over the finishing line in Parliament.
Understandably, politicians and analysts had a lot of questions about the details of the agreement. And the Democratic Unionist Party (DUP), which had so far been allied with the Conservative Party, opposed the deal.
Then on 19 October, Prime Minister Boris Johnson faced a Brexit showdown with Parliament during a historic Saturday sitting. As a result of the developments, Mr Johnson had to write to the EU to request a delay to Brexit until 31 January 2020.
And shares? So far in the month, the FTSE 100 has been in the red. On the other hand, the pound has surged against other major currencies. In general, the rise in the pound adds to pressure on the FTSE 100 – at least in the short run.
What to expect in the final days of the month
While I write this article, Parliament has just refused to allow Mr Johnson to rush through the Withdrawal Agreement Bill (WAB), the domestic legislation required to enact the Brexit deal, without proper scrutiny. What complicates the matter is that the Conservative Party has no majority in the House of Commons and that we have a deeply divided parliament where emotions are running high.
Meanwhile, we do not yet know if or when Brussels will grant the Brexit extension requested by Mr Johnson.
Financial markets hate uncertainty. Yet we may not have the exact details of the UK’s exit from the EU for weeks to come.
Therefore, in the short run, I’m expecting continued volatility in both the stock markets and the value of the pound.
So what should the average investor do now?
For prudent investors, it is neither a curse nor a blessing to live in interesting times. As long as we do our due diligence, we can continue to put our savings to work at reasonably high rates of return.
For example, if you like to have domestic exposure, but are rather worried about selecting individual companies due to increased uncertainty an industry may face, then you could buy into a FTSE 100 tracker fund.
For those investors who may feel overwhelmed by the effect of domestic politics in the short run, I think an ETF to consider could be the FTSE All-World ETF, tracking the performance of a large number of stocks worldwide. Such a global exposure may help decrease the potential short-term adverse effects of the home bias in these uncertain times.
