Smart Brexit

Smart Brexit means absolutely nothing. It’s a bit like all the other monikers that have been used to describe one of the most complicated policy changes in British history: soft Brexit, extreme Brexit, hard Brexit, austere Brexit …

Any deal will be nuanced and complex and elongated. It won’t be boiled down to a pithy slogan. The result of these talks will have a huge impact on the UK, its economy and investment strategy over the next two years and beyond.

At the moment these ludicrous definitions are being taken seriously by investors and traders appear to be trying to discount the likelihood of hard and soft Brexits without really having a clue what they mean.

Over the past few months, I’ve come to the conclusion that Brexit will truly mean Brexit – no deal and a complete break with the single market – or the UK will remain in the European Union (EU) as it is.

Given the make-up of the new Parliament, I think any exit deal with the EU will be put to the people in the form of a second referendum. Let’s be clear, this deal will not be acceptable because it will involve the UK leaving the single market. Ending freedom of movement is almost impossible for Theresa May’s Government to ride back from. Remain-leaning MPs would find a way to defeat the government, assuming the current one is still in place (a big assumption at the moment) stating that the will of the people needs to be rediscovered.

I think there’s a high probability of a Brexit-weary electorate voting to reject such a deal and stay in after all. Impossible? It’s possible that the UK will be in recession by the time the deal is hammered out. Higher interest rates and rising prices (as austerity is condemned to the annals) may deflate the public’s appetite for the unknown. “Project Fear” is proving to be rather too close to reality for comfort.

In my view there is a 50/50 chance of either a clean break form the EU (without a deal) or the status quo. Before the last month’s election I would have said there was an 80% probability of a clean break from the EU. Now it depends on whether Mrs May is rolled and whether her successor is a Remainer or Brexiteer.

Both outcomes have a huge impact on my strategy and the approaches to be taken are diametrically opposed. To make the best of Brexit, we would own overseas assets, while domestic UK equities would be the best avenue for the status quo. Timing will be unbelievably difficult and almost impossible to get right. Owning UK assets is going to be a rollercoaster ride for the next six months at least.

Time to find a smart fund manager – or a lucky one!