With just over a month until Britain goes to the polls, campaigning is well under way and it is not possible to pick up a newspaper without quickly gleaning whether the journalist is in the ‘Brexit’ camp or of the ‘Bremain’ persuasion.
The debate is certainly dividing some of the UK’s top investment analysts and it looks like being a very close call.
It is worth considering the performance of the market since David Cameron made his referendum announcement in February, when the FTSE 100 stood at 6,037. The UK’s main index
initially rallied to over 6,400 in April before sliding again at the beginning of May, as referendum jitters appear to have set in, indicating that investors are contemplating Britain’s burning question ahead of making investment decisions.
Whilst evidence suggests that UK businesses are delaying their expenditure plans until after June, volumes on the markets have held up reasonably well. This could in part be due to the fact that the FTSE 100 is comprised of many companies which operate outside of the UK, where fortunes are more aligned with global growth than with British politics. That said, should a Brexit become a reality, many such companies would be negatively affected and would need to renegotiate trade deals.
That Brexit could result in a weakening Pound has been cited as a concern for the UK economy but, for British companies exporting internationally, a devaluation in our currency is largely positive, making our exports cheaper overseas. We expect Sterling to be a barometer of the likely result. The Pound fell when the referendum was announced in February and it has since regained that lost ground.
Betting on black or red is not part of our investment philosophy and, though we would be unwise not to pay some attention to the ongoing debate, we believe that a well-diversified portfolio should be able to cope with the effects of either outcome.
However, we are minded that, in a Brexit scenario, assets which are most at risk would be Sterling, UK equities and property, with the effect on Gilts somewhat of an unknown.
We consider that our overweight position in overseas assets would likely be least impacted and could be a key beneficiary of a weaker Pound. As a defensive tactic, we raised a little cash during last month’s market rally which will enable us to act swiftly as opportunities arise once the British public has answered the question on everyone’s lips!
The value of investments and income from them may go down as well as up and investors may not get back the amounts originally invested. Investors should refer to their financial adviser to ensure that our service is suitable for their investment needs.