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With Brexit retreating even further into the long grass, the UK looks cheap

So back goes the Brexit deadline once again, says John Stepek. It just goes to show that British stocks are undeniably good value.

190411-May-634

May's long march to Brexit continues

A couple of months ago, I told you that it looked as though Brexit had been kicked into the long grass.

We've now got confirmation that this is exactly what's happened.

We were meant to leave on 29 March. Then it was tomorrow. Now the deadline has been pushed back to 31 October.

(And I wouldn't bother getting your Halloween-related puns ready yet, headline writers, because I reckon that deadline is a movable feast as well.)

So what happens now? And what does it mean for your money?

A half-hearted attempt to keep the French happy

We won't spend long on this point, but just to give the context: French president Emmanuel Macron favours the idea of getting Britain out of the EU sharpish so that the EU can get on with le grand projet of further integration.

I'm not a big fan, but I appreciate Macron's honesty on this. One reason I'm pro-leave is because I think that a formalised, transparent, multi-track Europe would be a good thing.

Why? Because if the euro project is to survive, the eurozone countries need to integrate more closely. If they are happy to do that (and I'm not entirely convinced they are, admittedly), then they should be free to do it without interference from nations that would prefer a looser trading arrangement (like the UK).

If Europe is to progress from here, then the trade-offs, costs, benefits, and ultimate goals need to be made a lot more explicit to voters in all countries than they have been. There's been a tendency in the last two decades to advance by stealth. The good thing about the Brexit discussion is that it has brought a lot of the resulting tensions and contradictions further into the open.

Anyway, Macron couldn't be seen to give the British an easy ride no self-respecting French president could, after all. But at the same time, he can't be the one to take the blame for a "hard" Brexit, particularly when the rest of the EU would much rather play the long game and hold out for no Brexit at all.

So in the end, the concession to the French was an October deadline with a "check-in" meeting at the end of June. Britain can leave earlier if Theresa May's deal can get past parliament (no, don't laugh).

So that's where we are now. If you ever thought that a "cliff-edge/hard/clean (delete according to political persuasion)" Brexit was likely or possible, then with the best will in the world, you must have been sleeping throughout the Greek crisis (not that I'd blame you for that).

If you already agreed that UK assets were cheap, this only confirms it

As far as our relationship with the EU goes, Britain now faces a long period of negotiation that most likely ends with a softish Brexit, or no Brexit at all. And that was already on the cards as far as investors were concerned.

What's trickier now is the internal political situation in the UK, which is also one reason behind the market's ongoing distaste for British assets.

Anatole Kaletsky, writing for Gavekal, argues that the Conservatives are likely to try to get rid of May "but it is far from clear whether such a coup could succeed".

A general election, meanwhile, is unlikely simply because the Tories would probably "unite to vote this down". Kaletsky suggests that Labour might agree to back May's deal but only subject to a "confirmatory referendum". That strikes me as unlikely does Labour really want to risk that? but you never know.

Then of course, there's the question of the European parliamentary elections. Whatever the outcome, they are likely to be interpreted by vested interests on either side as the closest thing to yet another referendum on Brexit.

All of that said, we're currently looking at gridlock, rather than seismic shock. There is room for plenty of surprises as the pieces get shuffled about on this chess board. And expect many, many more ongoing headlines about "national humiliation" and the rest of it.

It won't make anyone very happy. It won't improve the tone of the national conversation much. But if you already agreed with me that the UK is probably now unjustifiably cheap relative to other global markets, then this particular outcome only confirms that view.

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