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Market update: The Brexit countdown

Richard Flax, Chief Investment Officer

Usually, car crash television is something you know you should turn off, but you just can’t.  With less than two months to Brexit, UK ‘viewers’ face the inverse. 

We know we should keep watching – because it’s important and unprecedented – but we just can’t face it. 

It’s just been too long, too intractable and too awful. And we’ve all come to realise (at various points) that, if we’re lucky, we’ll reach not the end, not even the beginning of the end, but maybe just the end of the beginning of this sorry mess.

What’s going on?

It’s difficult to believe MPs have been back in the office for just 48 hours. 

In this time, Boris Johnson has already suffered three defeats in Parliament and the slim Conservative majority he inherited with the Premiership has crumbled below him. 

A bill designed to stop the UK crashing out of the European Union without a deal on 31 October is soon expected to pass through the House of Lords,  before it seeks royal assent early next week. 

Following the first vote on the bill, Johnson expelled the 21 rebel Conservatives that voted in favour of the motion. With a number of Conservative MPs falling on their sword – with the latest being Boris’s brother Jo – the Prime Minister knows he has little room to move. 

Johnson tabled a motion to hold a General Election to break the Brexit deadlock, but failed to rally the two-thirds of Parliament required for his motion to be passed. Labour has said it will back a General Election once a No Deal Brexit has been averted.  

With just two months until the UK is due to leave the EU and days before parliament is shut down, events are fast-paced, and news quickly out-dated. 

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By making an investment, your capital is at risk.

Whilst our Investment Team are monitoring the events and analysing their long-term impact on markets and portfolios, we don’t believe that reactive trading to avoid short-term fluctuations is the best investment strategy to maximise returns over the long-term. Instead, stick to your long-term investment strategy and avoid knee-jerk reactions. 

What does it mean for financial markets and portfolios? 

The uncertainty is clear, but what do the options head of us mean for financial markets? It’s important to remember that financial assets are the product of thousands of decisions-makers – most of whom are utterly indifferent to the fate of the UK except as a source of profit and loss.

The basic shape of No-Deal seems clear, sterling  is likely to suffer, long-bond yields will fall and domestic risky assets will get cheaper. The FTSE 100 usually benefits from a weaker currency, but it’s not clear how much it will in a No Deal scenario. 

If moves away from a No Deal continue, we would expect to see the inverse – a rally in sterling, a sell-off in UK duration and the FTSE 250 outperforming the FTSE 100. 

How Moneyfarm portfolios are prepared for Brexit

People talk about the challenges of building portfolios in such an uncertain environment. But the truth is, whenever you’re investing, you’re managing the uncertainty of the future. 

It’s important to maintain the strategy you adopted when building your portfolio. For us, that’s keeping our global diversification, investing for the long-term, and avoiding knee-jerk reactions to the latest twist and turn of the Brexit saga.

Over time, our Investment Team have made some careful adjustments to portfolios to ensure they are in the right position to weather whatever Brexit throws up.

In July, we reduced our sterling exposure by around 8% in higher risk portfolios, which has supported performance. We maintained our global stance, continuing to invest in a broad range of asset classes and equity exposure.

Overall, we’re not in a rush to change our positioning for Brexit. We’ll likely make some adjustments over the next few weeks, but we’re not keen to aggressively bet on any one political outcome at this point.

Our Investment Consultants are here to talk you through every part of your investment journey. If you have any questions about the decision-making of our Investment Team or the advice you have been given, please get in touch with the team on 0800 4334574. Technology makes our advice cost-efficient, our Investment Consultants make our advisory service work for you. 

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