Editor's letter

A once-in-a-generation chance to buy

Brexit fear has gripped the stockmarket. Now could be a rare opportunity to pick up London-listed stocks on the cheap, says Merryn Somerset Webb.


The end of the year is near. For you, that means it is time to start thinking about Christmas. For us it means it is time to read the many, many 2019 forecast reports coming in. So far, so grim. Everyone is worried about global growth and tightening monetary policy, and almost no one expects to make any money in stockmarkets.

Look to the US, says Luca Paolini of Pictet Asset Management. The effect of Donald Trump's fiscal stimulus is fading, but wages are "at last growing and feeding through into inflation" (already at a ten-year high across the major developed economies) and bond yields are rising. On Paolini's model, a one percentage point rise in US bond yields cuts the "fair value" of the S&P 500 by 20%. Expect, he says, US equities to end 2019 "in the red". Is your portfolio ready for that? If not, there's still time.

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Keep more cash than usual (Paolini reckons cash will be the place to be); reduce US exposure; and invest in cheaper markets. That could mean Japan it has one of the few stable political environments and low levels of corporate debt (increasingly unusual Matthew Partridge writes on Thomas Cook's woes this week). It could mean Switzerland (with many defensive firms in its index). It could mean China, now offering some of the best value in emerging markets (Max King is keen on new-ish trust run by a fund management group we particularly like). It could even mean the UK.

It could even mean the UK. Here, equities have trailed the MSCI World index since the Brexit vote, thanks, says the Financial Times, to a "toxic mixture of extreme uncertainty around Brexit and the risk that a hard-left, tax-raising Labour party" could gain power. It is, reports a Bank of America Merrill Lynch survey, now one of the least-popular asset classes to global managers.

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We wonder. There is definitely unpleasant uncertainty. But even the government's analysis of the various Brexit options suggests "the economy will continue to grow in the long run and therefore be larger than today under every scenario". That makes a mild mockery of the semi-hysterical quotes from parts of the City (one analyst reckons the UK is "close to uninvestable").

Also note that, while we do not expect a "no deal", the costs of one are falling every day. So we wonder what would happen if May's deal which, backstop aside, is Brexit goes through and she hangs on as PM; or it fails, but the happy result is a cross-party shift to supporting Efta (our core hope from day one)? Might the period between now and 11 December suddenly look like it was a once-in-a-generation chance to buy (for the long run) into what the Legatum Index reckons has the world's fourth-best business environment, at unusually low prices (a price-to-earnings ratio of 12-ish and dividend yield of 4.2%)? Stranger things have happened.



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