The Brexit show moves on like a cup of tea – an analogy I heard used by a Lithuanian political commentator. The idea being that you can leave the tea bag in the cup (UK in Europe) as long as you like now, up until October 31st anyway, and when you take it out will just mean the tea is stronger or weaker, hotter or colder. All a matter of (political) taste.
The immediate reaction of stock markets is a bit like that of the woman to the noisy arrival of a husband who has come home drunk so many times now, it is only remarkable if he comes home sober!
So what might shock markets would be some well supported concrete decisions from the UK government and some definite changes with actual guaranteed dates attached.
In the short term, we will need to see if Mrs May is really prepared for a fight with the hard Brexiteers and if she is prepared to seeks an element of support from the Opposition in defeating them. That would be pragmatic but I personally think not very likely.
Should investors assess the markets as now carrying less risk? Absolutely not. Other economic news has got worse. Markets may rise in the short term because they are set in that groove, but growth in asset prices like we have got used to is unsustainable and I would be using any unexpected spike up to bank more profits.
If you disagree and want to buy the cheapest assets, then probably certain segments of the UK market are the best value, but I would only drip feed money in very slowly.
On the currency front, which is still a very relevant consideration in the light of global trade disturbances, one should look to see where interest rates will rise first and the US is not so much the certainty that it was. Trump may well be pressurising the Fed not to do what it ought to in the light of US economic data. How long that can last is anyone’s guess.
Having said that, if I were buying global funds at the moment I would concentrate on global players with plenty of cash in hand and incomes and share prices in US dollars. As a diversifier for higher risk investors, Japan looks logical.
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