What Brexit could mean for investors: 3 things we know so far
It’s been an eventful week for Theresa May who may be fighting for her job after the Brexit draft deal went down about as well as a warm Guinness. The biggest takeaway for me is that Britain could be remaining in the single market as a non-voting member for an unspecified length of time. This puts Britain in a state of limbo, unable to leave without EU approval or have any say in the rules. It’s gone down particularly badly with the Brexiteers who see this as another concession to the EU, although Remainers after a second vote are unlikely to be supportive of the deal either.
This deal may not please anyone but it may turn out that this is the only acceptable compromise considering what is at stake if there is a no-deal Brexit.
The bears have been biding their time
This Brexit deal has been looming for a couple of years and although the outcome has been uncertain, we have known it is unlikely to be pretty. Rather than move money to safe assets and sit on the sidelines of the FTSE after the referendum, it looks like the bears have been waiting for the right moment to move their money out of stocks. This has already affected share prices significantly and shares could drop lower still.
These are difficult times to be a buy-and-hold investor, even though we know that it is the best strategy in the long run. There is a lot of volatility in the markets and it can be tempting to wait on the sidelines until the outlook is a little clearer. Unfortunately it is very difficult to time the markets and results from frequent traders repeatedly show that they underperform the markets over an extended period of time.
Political instability is likely to continue
Investors like certainty and there isn’t much about at the moment. This draft deal is full of compromises and delayed decisions that the chief Brexiteers said we could avoid if we played our hand well. There is still a lot that could go wrong and several commentators are predicting a full market crash. This could occur if there is mass panic selling, but this would be an overreaction unless we are faced with a no-deal Brexit, and that is something almost everyone wants to avoid. On the upside, this confusion may also present some good buying opportunities.
Upside may be a long way off
A hard Brexit always seemed a little adventurous and sure enough this Brexit deal looks very soft (albeit lumpy and uncomfortable). In the deal, it is written that the EU and the United Kingdom must agree to end the customs agreement when it is “no longer necessary”. This means that we will be unable to leave this deal without the consent of the EU. All in all, very little about any future trade agreements that the markets were hoping for has been decided.
Therefore we still don’t know a lot about how Brexit will affect the UK economy in the long term. I think we all have to be mindful of our own sanity at times like this so I’d to sit back and watch it all play out. I’ll be keeping quiet and cautiously watching my favourite stocks for any good buying opportunities.
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