Markets have been turbulent following the unexpected vote to leave the EU. And rightfully so - economic growth is based on the confidence to invest in property, plant, equipment or research and development now in order to generate profits in the future. If those investments are deferred or not made then that growth does not materialise. Spending will also be deferred by consumers uncertain about the future. So we are pretty much guaranteed a recession. Its length will be determined on how quickly this is resolved. The severity will determined by the level of deferment of spending. So it is quite easy to perceive that this recession will be both lengthy & severe and position accordingly.

And essentially that is what the market has priced quite rightly to some extent – a severe consumer-led recession. This is why we have seen retailers, banks & housebuilders bear the bulk of the sell-off. But the sell-off has not been uniform as the rapidity of the response to the unexpected result has been varied due to different shareholder registers & liquidity profiles. This yields opportunity. Here are some trade ideas based on the differential movements of stocks or valuations in the same sector. Each takes the form of a short idea which I don’t think has fallen enough to take into account of the current situation (although prices are moving fast so there is no guarantee these prices will still be available) plus a potential hedge if you prefer to be market/sector neutral.


Short: McCarthy & Stone (LON:MCS) @187p
1m RS = c.-20%

Just a housebuilder – see good analysis by ‘fizzlebiz’ here

Hedge: Bovis Homes (LON:BVS), Bellway (LON:BWY), Crest Nicholson Holdings (LON:CRST)

1m RS = c.-30%

EV/EBITDA all = 6

Clothes Retail

Short: ASOS (LON:ASC) at 3600p
1m RS = c.+5%

Hedge: Debenhams (LON:DEB)
1m RS = c.-20%

If the recession causes retail spending to plummet there is no reason to think that ASOS (LON:ASC) ‘ s internet retail business will be exempt. Debenhams (LON:DEB) is a good hedge…

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