Brexit reset

What would a Martian think of the Brexit argument – or the Hammersmith & City line for that matter? David Coombs, our head of multi-asset investments, explains his thinking as Boris Johnson takes power in the UK.

17 August 2022

I love the Hammersmith & City line. It’s a smidge faster than walking but with a daily excuse for arriving late at work. And I get a good hour and a half of every day spent trapped underground that I can use to catch up on the news. Win-win.

While travelling in on Monday, I used my leisure time to listen to the podcast version of The Pledge. If you haven’t seen this programme, it is an hour of lively, unmoderated debate on Sky News each week.

Once again, the panellists were quarrelling over Brexit. The Remainers argued that proroguing Parliament was undemocratic while the Brexiteers thought Parliament had prorogued democracy by not executing Brexit in line with the referendum result. Both are right.

The Remainers contended that people didn’t vote for a crash-out ‘no deal’ (did we crash in?), ignoring the fact that they didn’t necessarily vote for a half-way exit either! The Brexiteers are adamant that people voted simply to be rid of the EU completely. Neither side can prove their assertions, so both could be wrong.

The Remainers believe the electorate was lied to by a bus (which has since melted back into the nation’s transport fleet, never to pay for its crimes) and they are incensed that its accomplice, Boris Johnson is now Prime Minister. The Brexiteers say they were lied to by ‘Project Fear’. Both are most probably correct.

The Remainers quote future predictions from the same institutions behind the initial Brexit warnings that were a little wide of the mark, so Brexiteers say they can’t be trusted. The Brexiteers say ‘no deal’ would be a bit inconvenient but OK – don’t panic and carry on. This also has little basis in fact. Both sides are hiding behind discredited forecasts.

So much common ground. What can go wrong?

Over the past three years I have tried to be the proverbial Martian looking down, trying to be objective amongst so much stupidity on both sides and attempting to plot an investment strategy that navigates Brexit so we make money irrespective of the outcome. By and large that has meant avoiding UK plc.

That has proved to be the right course so far, but where does a savvy Martian go from here? Uranus probably.

Like all investors, I crave certainty or, if not, high probabilities. The impasse at Westminster is the worst of all worlds. The constant blocking and can-kicking just extends uncertainty to the indefinite realm, to perpetual political poison. This has put off both direct and indirect investors into the UK. The money isn’t waiting in vaults until Brits get their act together. No, the global competition for capital means there are plenty of other economies willing to take that money and grow their economies.

Our new Prime Minister threatens the European Union with ‘no deal’, but a significant majority of Parliament is against this stance. Not exactly a strong bargaining position. And it certainly means I will not look to buy theoretically cheap assets in the UK. As an investor, I would prefer ‘no deal’ or revocation of Article 50 because of the certainty it would bring. It would allow both the public and private sectors to plan and execute their capital spending plans and support the UK economy.

The longer this current impasse continues (including a second referendum that might be more divisive than many fear) the more damage will be done to the economy, which will require even longer to recover. Crashing out might turn out to be better than a slow decline into insignificance.

For our multi-asset portfolio funds, revocation of Article 50 would drive us to buy UK assets. A ‘no deal’ exit on Halloween would likely be a wait-and-then-buy strategy for UK assets. Continued arguing, especially a second referendum, simply reinforces our decision to avoid UK assets. And our time horizon is unlimited. The sad truth is that we – like other global investors – have plenty of other options for investment. We’re sticking with the US economy, which is a shame really because the politics there is so boring!


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