European share indices all over the continent have got off to a strong start this week on the back of some significant Brexit-related news.
More specifically, concerns over the UK exiting the trading block without a deal on Thursday have receded. That comes after European Council president Donald Tusk confirmed the 27 other European Union nations have agreed to grant another extension, to January 31 2020.
The EU27 has agreed that it will accept the UK’s request for a #Brexit flextension until 31 January 2020. The decision is expected to be formalised through a written procedure.
Donald Tusk (@eucopresident) October 28, 2019
Nothing can be taken for granted in the current tense and unpredictable political arena but, for the moment, a disorderly Brexit has been taken off the table. That’s a scenario which would have grave economic consequences on both sides of the English Channel and possibly for years to come.
Hold your horses
It’s clear, however, now is not the time to go all giddy. This is the third such extension Brussels lawmakers have given their London counterparts and yet Parliament remains locked in a state of paralysis as ‘hard’ Brexiters, ‘soft’ Brexiters and Remainers continue to jockey for supremacy. And there appears to be little sign in the Commons of any resolution — from a no-deal Brexit all the way through to a People’s Vote — which commands the sort of numbers to pass through the House.
Prime minister Boris Johnson is angling for a mid-December general election to break the impasse, and his plans gained extra traction over the weekend after the Liberal Democrats and SNP suggested they could support a December 9 ballot. Labour still has to get onside, though, and it looks like they will try to hamper government plans by tabling amendments (such as votes at 16) which would kill any legislation right off.
It’s quite possible, if not probable, then, that we’ll find ourselves in the same position in three months time and moving back towards the Brexit trapdoor. And there’s no guarantee another extension will be signed off, given rising French resistance to dragging the saga out for much longer.
How to invest
This extended uncertainty certainly does little to soothe the trading troubles for many UK-focussed stocks from the FTSE 100. Banks, such as Barclays and RBS and Lloyds, have long suffered from the ongoing Brexit uncertainty, as recent trading statements have shown.
And it’s worth remembering the UK economy is expected to take a hit whichever Brexit path it follows. The impact assessment of Johnson’s deal is yet to be released but, according to think tank The UK In A Changing Europe, this would damage per capita GDP by 6.4%, though this is better than the 8.1% fall forecast under a ‘hard’ Brexit on World Trade Organisation terms.
There’s a sea of other Footsie-quoted shares that could slip over in the fallout too. Retail giants Next and Kingfisher, to name just a couple, and even sellers of non-discretionary goods like Tesco. Hotelier Whitbread and online property lister Rightmove could also come under pressure.
In this scenario, buying stocks which source a small amount (or preferably no) profits from these shores is the safest bet, whether it be household goods star Reckitt Benckiser, support services provider Bunzl, or pharma play AstraZeneca. Another sound idea is to buy classic safe-haven shares like National Grid or BAE Systems too, firms with solid earnings visibility however hard Brexit hits the domestic economy.