Focus on value exporters should protect investors from Brexit effects

Carolyn Black
Carolyn Black
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So, that’s it, no chocolate or sweets for me until mid-April as I have given up some things that I enjoy for Lent. Whilst writing, I am struggling a little without my mid-morning chocolate fix, though it is early days, and I hope that by the end of March, I will be finding my challenge… less challenging.

Sadly, I fear that the same will not be true for Theresa May and her triggering of the Brexit negotiations which is also set to take place before the end of the month. As we invest in both the UK and European markets, what should we be expecting?

Current forecasts indicate that Sterling will continue to weaken as the negotiations get under way. Whilst this could result in imported inflation, UK exporters should continue to benefit from the weakness in the pound.

Consumer confidence is however waning as we near the Brexit trigger which indicates that we could be set for a period of slower growth. With this in mind, it seems unlikely that interest rates in the UK will rise anytime soon, so savers will continue to see their low interest deposits eroded by inflation.

Whilst conventional wisdom suggests these outcomes, it is important to recognise that investors discount risk in advance and, to this effect, the pound could already be at the correct level.

It is interesting to note that growth has been resilient to date, though many forecasted that it would plummet after the referendum. Focusing on value exporters and underperforming domestic stocks should help to protect investors facing the Brexit effects over the next couple of months.

In Europe, negotiations with the UK are unlikely to take centre stage for a little while as there are several major elections to contend with, starting with the Netherlands this month, France in April, Germany in September and, potentially, Italy before the year end. As polls stand, it looks like the pro-European candidates will be victorious in the Netherlands, France and Germany. The one wild card is Italy, where the Five Start movement, if victorious, would likely push for a UK-style referendum which could well see the European Union come under pressure. These election uncertainties led to Eurozone stocks being sold off at the end of last year. When confidence returns, there could be some interesting value opportunities to be found in Europe.

As I struggle on through the early days of my self-inflicted sweet ban, the UK and Europe are preparing for their own trials. When I crack that first Easter egg on Good Friday and pat myself on the back with a renewed focus, I hope that we will also have a little early clarity regarding the direction of the Brexit negotiations and the potential future shape of Europe, though I fear that neither will be as sweet!