Market Outlook | Brexit - What Will You Be Buying If We Leave?

15th Jun '16 by jimbobjames2002

12 comments 10652 reads

Hi Everyone, I'm sure others have already asked this question, but with bookmakers slashing odds on us leaving the EU to 13/8 (3/5 to stay), which equities would you be buying (or indeed selling) in the event that we should leave?

Which companies would you back to succeed in this scenario, or are there just too many unknowns to know for sure? Are there certain sectors that could flourish or struggle? Will you be holding for the long term regardless or do you think cash is king until we know more? I’m also interested to know if you think a Brexit would affect large, mid and smaller companies differently within the UK.

I thought I'd try and get a discussion going within our fabulous Stockopedia community.

All views are welcome…

Cheers

James

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About the Author

Jimbobjames2002

Premium Member

12 comments

Maddox

15th Jun '16

Probably a house in another EU country!

Maddox

15th Jun '16

Seriously, any business that is deriving a high proportion of its income in Dollars and to a lesser extent Euros will potentially gain if the fall in Sterling is protracted. Also, defensive stocks will do well but I'll be avoiding manufacturing and UK focused retailers.

timarr

15th Jun '16

Absolutely. Look at Weir (LON:WEIR), Aggreko (LON:AGK), Smith & Nephew (LON:SN.), WPP (LON:WPP) and almost all big pharma all of whom have massive overseas earnings.

International financial services I'd avoid, there are some big overseas earners in there, but the impact of them losing access to EU markets is unpredictable. UK based financial services companies may do very well, I imagine there'd be even more clamour for financial advice than there is now and they'd presumably be freed up from a lot of EU red-tape.

timarr

Maddox

15th Jun '16

Hi Tim,

One note of caution on selecting pharma - we have integrated approval systems for medicines, medical appliances, pesticides and hazardous chemicals. I'm not sure what impact Brexit will have on this. Might UK drugs need to gain separate approval in another EU country? This might add to costs and disruption until those programmes are lifted and shifted.

Regards, Maddox

timarr

15th Jun '16

Hi Maddox

Good point. It would need someone with knowledge of how much those approvals cost to determine the ongoing impact. But in the short term I doubt it'll make much difference to existing drug sales and, for instance, over 90% of £GSK 's revenues are overseas.

I suppose the point is that Brexit will have all sorts of unexpected consequences: it's less that it will definitely damage the economy, it's more that it's hard to predict who will win and who will lose, not least because the political makeup of the country will presumably change. It's not the knowing that kills you, it's the unpredictability.

But as you said net importers, aka UK Retail (is there anyone else these days - what about power generators importing electricity from France?) will lose out if the pound goes walkabout. Although I suppose travel operators will benefit?

Swings, roundabouts, etc, etc.

timarr

Flackwell

15th Jun '16

You ask what stocks to buy in respect of a potential Brexit vote

For me it'll be Marks, Oddbins, and any other champagne retailer given the amounts I would expect to be drunk in the event of such a wonderful result

TangoDoc

16th Jun '16

Will there be enough champagne left after you've finished celebrating the victory in the football though?

Carey Blunt

16th Jun '16

I would be interested in knowing if anyone has a more considered Quant view to this question of what to buy as I had been thinking about strategy around this.

I think i'm inclined to buy businesses that people say are "always expensive" which have come off by say 5% over a period of turmoil rather than buy companies which have come down by 20% and which now look like bargains in comparison with their recent high (lets call them "sudden bargains").
With this approach I think I am favouring quality over value and investing over trading.

Assuming that there is a recovery over a period of turmoil then possibly this will mean that I miss out on bigger return as the 20% closes up in the "Sudden bargains" but my argument would be that the return to pre-turmoil prices might be all that I make over a 1 year horizon while the "always expensive" shares would close their 5% gap and then go on to make a further 20% just due to being great companies which everyone wants.

Its just a theory but would be interested in knowing if we can test it at all using Stockopedia stats.

Maybe there is a strategy that analyses daily the fall of stock prices over a set "period of turmoil" that is known about in advance, i.e. a run up to an election or in this case the referendum. For Brexit we could pick between 6th June running up to the 23rd.
The analysis would exclude shares that have reported during that period and then look for shares that have dropped the least in comparison with a benchmark. These stocks that hold up under pressure must be high market conviction stocks which most people have decided to continue to hold and these should be what we should try and buy into?

Ideally I would then track them over a further year to see if the "Sudden Bargains" outperformed the "always expensive" and which won over a longer time horizon.

Alternatively is there just a way to check how high stockrank shares do in a period of turmoil against low stock ranks? Any ideas Ed?

SevenPillars

16th Jun '16

Certainly in the short to medium term I think we enter a world of financial hurt if we vote to leave. Markets do not like uncertainty, they even struggle with certainty so an out vote leads to the unknown. A logical response would suggest that eventually deals will get done, but who negotiates it? Lame duck leader Cameron and Osbourne? Or do they resign post BREXIT and BJ takes over with all his bluster? God help us if Gove or Farage gets on the negotiating team with Europe.

The great irony for me is that many of those who want BREXIT and hate the EU want to keep the forced British Union together, yet if Scotland votes to stay and is forced out largely on an English vote, you can probably say goodbye to the Union. Despite falling oil revenues, independence for Scotland might be more attractive to them next time as they will apply to stay in the EU, which may well be attractive to business that doesn't want to wait years for England to renegotiate treaties. Imagine that, British businesses relocating North to get assured access to European markets. Could happen. and Europe might be happy to fast track Scotland in, give them the Euro, just to get up England's nose!

Still, we vote out I'm sure there will be plenty of bargains about in the market, just a question of not knowing when the blood on the streets has stopped running for the time to buy.

JamesrWilson1989

16th Jun '16

My pick is First Property Group (FPO):

- CEO has stated he will use the volatility to enter the markets, has the cash waiting to invest.
- Vast property portfolio in Europe - rental/asset values compared to £ will be favorable. 90%+ visibility earnings for next year.

vik2001

20th Jun '16

Hilton Foods and Treatt looking appealing at the moment to get in...

but does anyone know why the share has fallen so much during the brexit campaign weeks? being consumer defensive thought it would have been more steady..?

Brackendale

20th Jun '16

Hi James, regarding the AIM market, I was idly wondering (hoping) the other day whether Somero (SOM) might benefit from some European turmoil. I wonder whether AIM in particular investors might get a bit panicky and put some money into something that is still small cap and though listed here makes most of its money elsewhere (its based in US). This might just reflect the fact that I have been wondering when this one will take off for a long while!!

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Brexit - what will you be buying if we leave?

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About the Author

Jimbobjames2002

12 comments

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