The weeks become much longer and the news much worse. It would be remiss of me not to mention how saddened I am by the assassination of British MP Jo Cox, apparently the first UK Parliamentary assassination in over 25 years. Brexit has brought out the worst in many and at a terrible cost.
There is no doubt that those events have altered the course of the British vote. It would appear now however that the vote has moved from ‘razor’s edge’ to ‘almost securely Remain’. I agree that status quo will be the option selected by the majority and we will know from around 10am Friday morning.
The question, however, is whether you are prepared to take that chance? If so, great, just hope that there’s not another significant event that swings the vote back to Leave. I continue to urge extreme caution in the face of such colossal downside risk and summarise it with the following statement:
“Imagine your portfolio could be down 20% in a week’s time because of an event you know the exact date and time of and you did nothing to protect it?”
I’ve decided that the best place to turn is to a friend of mine David Pain, who has recently returned to Australia after working in London for 6 years with a hedge fund. He and his father Jonathan recently recorded a Webinar with us (link below) which was extraordinarily insightful.
I’ll leave it up to David to walk us through it:
Long GBP.
The death of a Labour MP in the North of England last Thursday by a right wing extremist has taken all the momentum out of the Leave campaign at the worst possible time. The pound which feels fundamentally cheap should rally over the coming week and post a Remain victory on the 23rd.
In the event of a Remain vote long UK home builders.
There are a number of sectors that are trading cheap due to Brexit fears but the home builders are in my opinion one of the more attractive sectors. The UK needs to build around 200,000 extra homes per year. For decades the UK has lagged on home building due to regulatory issues and which has led to a housing affordability crisis. The current government have unveiled a number of initiatives which show they are serious about housing reform. The UK home builders own large land banks and are direct beneficiaries to any liberalisation of the planning process.
In the event of a remain vote fears over a decline in immigration and the subsequent house price declines should reverse and the home builders should perform well.
Locally
Our market began to show a good deal of weakness early on, only just snapping a multi-day losing streak on Friday and this week seems to want to continue in the holding pattern based on polls. Effectively this market will swing one way to the next based on news of events and polls. The currency and equity market will turn on a dime. Stocks with earnings in Sterling and Euros will be, putting it lightly, volatile.
With a finger on the pulse of sentiment all I can tell you is the following:
- Brexit is still a possibility,
- If carried it may very well lead to the beginning of the end of the EU many years from now,
- I do not believe Britain will be the last country to hold such a referendum in the current European climate- look to any country with a far-right force in government or strong opposition and they’ll be next,
- Polling and a carried vote to Remain should see a relief rally into July,
- There is nothing else going on. This is the only thing people are looking at this week. Our marathon election takes a back seat as Turnbull realises the unfortunate truth that the longer he was out meeting the electorate the worse his results became,
- Fortunately for him, the same applies to Shorten,
- As of Monday morning the Brexit vote is below a 30% possibility making all Brexit discussion practically moot.
But nothing stops “#Brexit Week”
The unfortunate thing is that over the weekend the world’s financial and political press have written pages on the vote and how the world is balanced on the knife edge. Everything has been committed to print with us waking up to this from IG’s Chris Weston:
Tongue firmly in cheek of course, but there’s some truth there. Markets will shake this off before it’s even over.
This week I will be checking and double-checking portfolios to ensure adequate protection is in place. I hate to say it but the vote is now being swung on ‘events’ and don’t like placing bets on unknown events. Should Brexit be voted down (we should know for sure by Friday morning) I’ll be the first to cut back on shorts, open up the wall safe and buy some good quality stocks making money in Pounds and Euros. Until then I will continue to watch from the sidelines and/or protect my downside. Also remember that any spike in volatility will be the cause of and because of market corrections.
Investing is a marathon, not a sprint and I’d rather have the same clients in 20 years that I do now.
All the best,
James
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