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Brexit – what moving deadlines mean for stock markets and investors

Wild swings in the likelihood of a deal versus no-deal Brexit makes for tough decisions for investors in the UK stock market. Or does it?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Nadeem Umar
Research Editor

Published on 11 December 2020

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Last week negotiations were looking productive. Now Boris Johnson’s warning the nation to prepare for a no-deal Brexit.

Where we really stand, and the true “point of no return”, is impossible to know.

This article shares our views on how we think investors could assess their portfolios over the coming weeks, months and beyond. Remember it isn’t personal advice. If you’d like a second opinion on your own position, please get in touch with one of our advisers.

All investments fall as well as rise in value, so you could get back less than you invest.

Opportunities in the UK stock market?

Investors and stock markets hate uncertainty. We think Brexit uncertainty is the main reason the value of UK companies has stayed depressed compared to most other companies around the world.

Low valuations can make for good investment opportunities – so don’t write off the UK entirely. Investing in deeply unloved areas could help boost returns to your wider portfolio over the long term, but it doesn’t come without extra risk.

3 UK shares that could benefit from an economic rebound

The idea that companies trading on lower valuations make better long-term returns is a concept that’s proven true in academic research. But, as always, past performance isn’t a guide to what will happen in the future and valuations could fall lower.

Expect volatility and sit tight

Brexit news (good or bad) is almost certainly going to cause more sharp swings in sterling and UK stock markets. If you’re invested or thinking about making an investment in the UK, it’s important to cut through the short-term noise and stay anchored to your long-term plan.

What Brexit, Biden and vaccines mean for your money

Changes in the value of the pound won’t affect all investments in the same way. On average, the biggest 100 companies in the UK, the FTSE 100, make about 70% of their money overseas. This means when the pound falls against foreign currencies, the value of those overseas earnings rises in UK terms. This can help lift the FTSE 100. Of course, the reverse is true when the pound rises.

The next biggest 250 companies in the UK are collectively known as the FTSE 250. Unlike the FTSE 100, the FTSE 250 is made up of lots more domestic earners – companies making more of their money on home soil.

Sentiment towards the UK in general is likely to be the biggest short-term factor for the FTSE 250. These companies are also more vulnerable to the pound falling.

Why does an index matter to individual companies?

When the UK voted to leave the EU back in 2016, both the FTSE 100 and FTSE 250 dropped. Both indexes bounced back, but the fall in sterling led to the FTSE 100 rising much more sharply. Investors who tried to time the market, selling big UK companies, struggled to get back in. They were left out of pocket.

Practical tips for investors

This week alone has shown us how quickly things can change. Headlines this month are bound to keep coming hard and fast.

Trading quickly, chopping and changing your portfolio day-to-day, is going to be tricky at best. At worst you’ll be selling at market lows and buying back in at highs. Don’t make long-term investment decisions that impact your financial future based on short-term news.

If you want to make some changes for the long-term, aligning with your view on Brexit and the UK, take some time to do a full review. Our portfolio analysis tool gives you an x-ray view, showing exactly how much you have invested in each area.

Portfolio analysis tool

Whenever a deal, or lack of, is formally announced it’s going to be too late to react – markets move quickly.

Make sure you own a good mix of different investments in different areas now. Check you’re comfortable with how much you have in the UK and overseas – ask yourself if you’d be happy with your mix for at least the next five years.

If you’re happy to build your own portfolio and need some ideas to help spread your investments more widely, take a look at Wealth Shortlist. The funds chosen by our experts all do something quite different. It’s a good starting point to help you get well diversified.

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