After months of speculation, discussion and arguments, the day has finally arrived. Later today, the letter giving official notice under Article 50 of the Lisbon Treaty will delivered to Donald Tusk, president of the European Council, firing the starting gun on the UK/EU divorce proceedings.
Since the UK voted to leave the EU in the middle of last year, there’s been plenty of speculation about what the divorce will mean for the country and the rest of Europe. However, as it is almost impossible to predict what the future holds, the majority of this conversation has been worthless.
Nonetheless, over the next few months, we should start to get some idea of how the UK–EU relationship will look after the breakup has been finalized. When these details begin to emerge, investors, trade experts, politicians, and economists will finally be able to make some informed forecasts about what the future holds for both parties.
Until then, investors face a blank space of uncertainty. So far, UK markets have risen since the Brexit vote last summer. The majority of these gains are a result of sterling’s devaluation, which means the market is now being held to ransom by foreign exchange traders. What’s more, Donald Trump’s election as President of the United States has also been beneficial for equity prices.
What does Brexit mean for investors?
As mentioned above, trying to predict exactly how Brexit will impact markets over the medium to long term is almost impossible at the moment, as we have no idea how the final deal between Europe and the UK will look. Instead, City analysts can only try to guess what the ultimate agreement will look like.
Trying to imagine how stocks will react to developments that are, as of yet unknown, is downright foolish (with a small ‘f’). Positioning a portfolio on nothing more than guesswork will most likely end up costing you money.
Instead, the best way to prepare for Brexit is to invest in a portfolio of internationally diversified businesses, which are unlikely to suffer significantly if the Brexit negotiations do not achieve a favourable outcome from the UK. These firms may suffer from Brexit wobbles in the short term, but over the long term defensive companies such as British American Tobacco are well placed to continue on their current growth trajectory, no matter what.
The bottom line
So overall, the beginning of Brexit is the start of an extended period of uncertainty for investors. However, this uncertainty is not a reason to give up on equities, and until the details of any final agreement are known, there’s no need to make any drastic changes to your portfolio. Instead, the best way to ride out and protect against Brexit uncertainty is to shelter in large-cap internationally diversified blue chip equities which will be able to continue to grow no matter what the outcome of the divorce negotiations.