As the Tory party split that everyone expected begins to open up (how far it will go, I don’t know), it is worth taking a sanity check on where we are in practical terms and what if any implications there are for investors.
As will always be the case, the short term relative value of Sterling has been bouncing around on the news flow. This will impact the valuation of any portfolio that is diversified internationally, as most will be. That sort of volatility is not really of any relevance on its own because it is ultra short term and can safely be ignored until we see some more concrete outcomes when any long term trend will need to be taken seriously.
The point everyone needs to bear in mind is that the 585 page document everyone is getting wound up about is only the agreement of intent – a political statement as to what the parties think is possible if everyone is to get something close to what they want. As a negotiated document, it is bound to be a compromise but of course many Brexiteers have believed throughout that you really can have your cake and eat it. So they are not going to be happy. Remainers can’t by definition be happy with a document taking forward the exit.
It would have been really useful if the terms of this document were known at the date of the original vote. If the public had been asked “Do you want to leave the EU with these proposed T&Cs being on offer”, I suspect there would have been a Remain vote.
But that is irrelevant from an investment strategy point of view. What is relevant is the extent to which government in the UK deteriorates into chaos, assuming that it could, as I do. There could be a Tory party leadership bid, certainly rejection of the agreement by the House of Commons and I even wonder about a Labour party leadership challenge because if Jeremy Corbyn can’t force a General Election after failure of the government to get the agreement approved, I think his personal credibility will be even further dented.
Even if the agreement is approved (I would not want to bet either way) then that is only a step in the direction of more difficulties as the detailed practical issues start to get sorted out and the transition period runs out – it is not very long if you have a government in chaos internally.
For investors the message must be to allow for continuing high levels of market risk, especially in the UK, but also in Europe. Japan looks like an interesting alternative, as I have suggested previously, but currency issues always need to be allowed for when investing in the Yen. I still favour keeping plenty of cash or ultra low risk assets. The example low volatility portfolio (Long Term Cautious) on the site is a good point of reference as to the sort of funds mix that offers some protection and is available to view for subscribing members.
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