Investment Line: Market Update - October 2019
Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are focusing on, and shares our thoughts on the issues of the day.
UK – BREXIT DEVELOPMENTS
So, we didn’t really get a vote on the new Johnson deal on “Super Saturday” but that is not to say it was a day of no consequence. The vote that did pass forced the Prime Minister to ask for an extension to the Oct 31 deadline, as the underlying legislation would not have made its way through Parliament in time. In this sense, another possible (rather devious) route to no-deal was removed which ought to be a positive for relevant assets/markets. Boris Johnson has undoubtedly suffered a loss of political momentum but will now seek to get a vote on his deal today or tomorrow (the Speaker may object to this happening today, but it is unlikely to be blocked, ultimately). It is going to be incredibly tight, but the parliamentary arithmetic suggests that he may just be able to sneak it through given some of the voting on Saturday and previously expressed views from MPs. Another truly chaotic week at Westminster beckons.
The real fun is going to be had when the legislation relating to any approved deal is put to Parliament because at that stage amendments can be made to the deal. So approval may be forthcoming but with an insistence from the House on a customs union (which would invalidate the whole deal in its substance) or an extension to the transitional arrangements to prevent us crashing out in 2020 (if no trade deal is agreed). Both of these amendments seem to have a decent level of support and stand a good chance of being successful. An amendment relating to a confirmatory referendum is perhaps the most controversial possibility, but it seems unclear whether the numbers are there to get it over the line. If the deal is undermined with something like the customs union amendment, this is clearly a huge threat to the Government, and it is likely that a General Election will be the route sought out of the impasse. Whether the House would agree to this whilst the outcome of Brexit is unclear is another matter entirely. If a confirmatory referendum is supported, we of course have an extension of the uncertainty but also the possibility of not leaving the EU at all, as there would clearly be a Remain option on the ballot paper. The only real route to no-deal at this stage would appear to be a General Election resulting in a large Conservative majority which means a no-deal can get through Parliament. This remains an outlier at the time of writing but can clearly not be entirely dismissed as this ongoing saga continues to take twists and turns. A General Election also brings the risk of a left leaning administration which the market continues to be extremely wary of, especially if John McDonell is its Chancellor of the Exchequer.
From an objective, market perspective, there is a very good chance that we get a “positive” outcome from this point and that naturally makes us think about whether we should be increasing UK allocations in portfolios. Although we have already made reductions to exposure, this does not mean that from a global investor perspective our holdings are particularly low so any new-found optimism would not automatically mean adding to UK risk assets. That said, as we digest the developments this week, if we see an opportunity presented which the market is overlooking or not fully factoring in, we will not hesitate to make a move. We also need to keep an eye on sterling, which can have such an impact on overseas assets.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns. Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.