2019 is gearing up to be one of the most intriguing — or some would argue, terrifying — years for the global economy in modern history.
Tense Brexit negotiations are coming to a head; Robert Mueller’s investigation into President Trump’s election campaign is picking up momentum; eurozone economies are rapidly losing steam; and US-Chinese trade discussions are intensifying… These are just a handful of the tough geopolitical and economic considerations that investors are having to chew over as they shape their strategies for the next 12 months.
Share pickers clearly need to be especially careful right now, but if played the right way, stock markets still present a galaxy of opportunity for participants to make buckets of cash. Here I am looking at a couple of tips that FTSE 100 investors need to think about adopting for 2019.
Avoid the banks
In a recent piece that I wrote about Lloyds Banking Group I discussed the problems facing Britain’s banks assuming Parliament follows through on the summer 2016 Brexit referendum and withdraws the country from the European Union.
Under all scenarios the domestic economy is primed to suffer, but particularly so should Parliament fail to approve a deal with the trading block before March. And as the hardest of hard Brexits becomes ever more possible (last week the UK government removed the term “unlikely” from all of its no-deal Brexit technical notices in a sign of the current state of negotiations) it’s a risky time to buy into companies that are highly-tuned to the state of the domestic economy.
This means that Lloyds, along with Barclays and Royal Bank of Scotland, firms that all derive large chunks (if not all) of their earnings from these shores, should probably be best avoided right now. But that’s not to say all of the Footsie’s banks should be ignored. HSBC is one of the UK’s biggest banks, of course, but the fact it sources nine-tenths of profits from Asia still makes it a great buy for next year, certainly in my opinion.
Buy foreign currency reporters
With Britain careering towards an economically-destructive Brexit then it’s also possible that sterling could extend the severe downturn of 2018, a fall that has seen it plummet against the US dollar more specifically in recent sessions.
This means that investing in shares that report in the US dollar or the euro is probably a good idea. Of course, the eurozone economy is likely to suffer from a no-deal Brexit too, but probably not to the extent that the UK will, and this bodes well for the continental currency against the pound in the coming year.
And there’s certainly no shortage of great shares to pick from in this regard, spanning a broad range of sectors and with varying risk profiles, from dollar-geared Diageo and Randgold Resources to euro plays Mondi and IAG. Currency translation is of course not the be-all-and-end-all for Footsie firms, but a sinking sterling could well give businesses an extra profits boost for 2019 and quite possibly beyond.