If you hoped that as we start 2020, we could all forget about Brexit, you’re going to be disappointed! A new year yes, but still a lot of work to be done before the last few years of dysfunctional European/UK relations can be consigned to history.
The news flow on Brexit dropped off over the holiday period, so it’s worth recapping where we’re at and the financial market reactions.
Following the Conservative Party’s general election victory on December 12, its huge majority enabled it to bring the Withdrawal Bill back to the House of Commons in late December and see it passed.
So what happens next?
In short, quite a lot. Yes, the UK will ‘leave’ the EU at the end of the month, but we now move into the transition phase that lasts until the end of the year… and no further, it seems. In the bill that was voted for, PM Johnson ruled out any extension to the negotiating period to agree new trade deals.
Therefore, in theory, the UK could be without any trade deal with the EU at the end of December, something which would be seen as bad for business and, of course, for shares.
Yet FTSE 100 and FTSE 250 share prices have reacted positively to the breakthrough in Brexit thus far. Taking a look at the FTSE 100 index price for December, it was at 7,273 on election day and rallied to finish the year at 7,542, a gain of 3.7%.
What should we expect for 2020?
Depending on your portfolio and what your favourite stocks are, you could see out-performance thanks to Brexit this year. But this depends on which way the trade talks swing, and which sectors stand to gain or lose the most as a result.
For example, there has been a lot of chatter about financial passporting rights for banks and the freedom (or lack of it) that they might have as part of any trade deal. If we do see access to the single market being granted for these financial institutions, expect to see banks such as Barclays enjoying a strong uplift.
A flip side example can be seen with the pharmaceutical industry. Trade deals may involve EU-funded grants and research initiatives being cut. Along with this, there could be higher costs to get drugs to the UK depending on ease of access at the borders. Firms such as AstraZeneca could see volatility in their share prices as a result of this.
Where does this leave your portfolio? In uncertain territory! Overall, it appears that 2020 will still see a lot of volatility for financial markets due to Brexit. With the focus now shifting from a deal within Westminster to a trade deal with Europe and beyond, the year will be business-focused and there are bound to be plenty of sensational business-linked headlines to scare (or delight) us.
But despite the ‘interesting times’ we live in, my advice is the same as it would be in more boring times: if you research companies for your watchlist and find solid businesses in which you really believe, short-term volatility could be an opportunity to buy-in at an affordable price and then hold for the long term.