Almost a month ago, I examined the chances of Britain tumbling out of the European Union without a deal next March. The piece made for bleak reading, and the sounds coming out of some of the world’s largest carmakers in recent days illustrate the huge challenges facing the UK economy should it fail to strike an accord with its continental partners.
The newsflow from Westminster or Brussels hasn’t become any more encouraging that a deal can be agreed in the coming months, raising the risk to the vulnerable FTSE 100 shares which I examined in the aforementioned article.
However, there’s no reason for share investors to reach for the cyanide as there remains plenty of stocks that could thrive in the event of a no-deal Brexit.
Precious picks
Let’s take the precious metals producers Randgold Resources and Fresnillo, for example.
The groundshaking decision of the UK electorate in June 2016 prompted a demand surge for safe-haven assets such as gold and silver, as one would expect, and thus shares in the Footsie’s dedicated diggers. Randgold surged to record highs above £97 per share while Fresnillo rocketed to its own peaks, north of £20.
Both firms’ share prices have reversed significantly since then, leaving plenty of room for another surge should a terrifying no deal exit occur. There’s plenty of geopolitical and economic issues that could drive precious metals values sky-high again, and a painful Brexit is one of them.
Eastern promise
In the article I referenced at the top of this piece, I explained why a disorderly EU withdrawal could play havoc with the banks such as Lloyds, RBS and Barclays. And this is reflected in the steady market value shrinkage of these firms.
The same cannot be said for HSBC Holdings, however. Indeed, after a muted reaction in the fallout of the 2016 summer vote, the bank’s stock price has swelled. The Footsie bank would see some disruption to its UK and European operations in the event of a no-deal withdrawal. But in the overall scheme of things, the impact on the business is minimal.
HSBC, after all, generates almost 90% of profits from the hot emerging markets of Asia. And the earnings outlook in this region looks splendid, on account of rampant population growth and rising banking product demand. Investors looking for a slice of the banking sector could be forgiven for dumping the British-focussed banks for HSBC in the event of a no-deal exit.
Consumer goods goliaths
I would also expect demand for fast-moving consumer goods leviathans Unilever, Reckitt Benckiser and Diageo to thrive if Britain can’t agree to a favourable withdrawal pact.
Like Randgold Resources, HSBC and Fresnillo report in non-sterling currencies, a scenario that should give their earnings a bounce in the event of a no-deal Brexit amid a likely dive in the value of the pound.
Secondly, these businesses also generate the lion’s share of their revenues outside of the UK (and indeed Europe), providing plenty of protection from an economically-disruptive Brexit. And thirdly, the exceptional customer loyalty that these companies’ labels command, from Diageo’s Guinness to Reckitt Benckiser’s Durex to Unilever’s Dove soap, provides another reason why earnings should continue marching higher.