How To Prepare Financially For A No-Deal Brexit
Despite the millions of protesters, both online and on the streets of London, Brexit is still on the cards.
The growing strength of the anti-Brexit faction may even be making a no deal departure more likely, as debate becomes polarised and the likelihood of a compromise deal fades.
Given the risks involved, how can you prepare financially for a no-deal Brexit?
Diversify
It won’t be a new idea to any investor, but it’s a fundamental point that should provide context for everything that follows – diversification is good.
Although we can make all the educated guesses in the world, no-one will know precisely how a no-deal Brexit plays out until it happens.
That said, it’s unlikely to be pretty.
Under these circumstances, it’s good to have a solid defensive strategy in place. Diversifying protects you against a significant drop in any individual part of the market. Having given that caveat, here are some likely ways of securing your position.
Active Investments
For many people, an active investment strategy has little appeal. Reactive, high-speed trading takes time, energy, and risk.
It can provide big rewards, but also losses. It’s not everyone’s cup of tea.
If you have any appetite for active investing, then now is an excellent time to focus on that.
A no-deal Brexit will lead to instability and a lot of fluctuation in share prices.
If you have the knowledge, time, and energy to act on it, this could be a good time to make money off active trades.
Be Careful Around European Stocks
It might sound perverse to pick on the stocks of European companies, which will come out of a no deal scenario with a stronger economic block and established trade deals on their side.
But the fact is that a no-deal Brexit will affect European companies, many of which have strong connections to the UK.
And while the uncertainties of no deal are already affecting the price of British companies, there’s little sign of investors taking it into account with European companies.
So look at your European stocks, consider whether they’re likely to take a hit, and move out of them if needed.
Switch Currencies
If you keep a substantial cash reserve, this isn’t the time to keep it in sterling.
Senior British economists have predicted a hit of at least 10% in the currency’s value if no deal happens, with a decent chance it could go much higher, even putting sterling on a par with the dollar for the first time.
Instead of sterling, consider US dollars, yen or Swiss francs.
Cash Flow for Businesses
Delays in imports and exports will mean resources tied up in goods for many British businesses.
That means cash flow problems.
If you own a business or are heavily invested in one in the UK, check that there are plans in place for this, and be aware, whatever the long-term prospects, profits, and dividends may not be coming through this year.
Check Where Your Investments Are Managed
EU legislation lets UK fund managers delegate some of their services to third parties elsewhere in Europe.
If a no-deal Brexit happens, legal barriers may shoot up between these managers and the people they employ.
In extreme cases, UK-based investors might not be able to access assets in Europe until new relationships are negotiated.
In the meantime, opportunities will be missed. So check how your investments are managed and make sure they’re safe from such disruption.
Housing
There’s some debate over how no deal would affect the British housing market.
Some believe that the prospect of Brexit, along with other changes, has already done the damage and been priced into the market.
Others believe that it could cause a slowdown, as construction companies face challenges obtaining materials and finance.
Under the circumstances, the usual advice that you can’t go wrong investing in property may not apply.
If you’re considering a property move, hold fire for a few months and see how things develop.
Mortgages
Knock-on effects of trade disruption are likely to reduce the liquidity of the market, reduce lending and raising the rates on mortgages.
If you’re currently considering remortgaging, don’t delay, but get it done before a no-deal Brexit can hit.
And if borrowing for property is an important part of your business, be ready to pay more on those loans.
Reduce UK Exposure
Given the risks to the British economy and companies, now isn’t the time to be strongly exposed to UK stocks.
Reduce your exposure to UK stocks, especially companies whose income comes primarily in sterling.
Find companies, whether based in the UK or abroad, whose profits arrive in the form of stronger currencies.
They are more likely to retain their value.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
