How FTSE 100 investors could profit from 'bad Brexit'

Is Brexit a threat or an opportunity for investors?

Brexit is a curious animal, the worse negotiations go, the more likely we end up on a WTO trading regime and all the paperwork that involves which will act as a tax on the UK economy, the weaker sterling will be, and, ironically, the stronger the FTSE will be because of Dollar, Euro, Yen earnings being translated into sterling. So we could see Brexit negotiations going badly and the FTSE reaching new highs.

One needs to keep a view therefore of small and mid-cap companies to really know how UK Plc is feeling about Brexit, and I suspect they will weaken as Brexit negotiations continue because it is those that are exposed to the real UK economy. So I think one needs to be quite judicious in ones approach to the UK market and probably favour the large blue chip multinational stocks.

What sectors do you believe will perform best during Brexit negotiations?

The sectors that will perform best I suspect are the miners, the energy companies, large global consumer companies some which might have been recently had an attempted bid for - who knows! Large foreign currency earners that are relatively insulated from the UK domestic economy; there's another group of FTSE 100 companies who are also a relatively defensive play and that's utilities. OK, very little of their turnover comes from overseas, but we will still be buying power and water no matter what trading regime we end up with the EU.

Which shares should investors buy to see them through the next two years?

I actually suggest that investors should stick to a global portfolio (they should be anyway) there's too much of home bias in many of our own portfolios and that will protect us against weakening sterling.

What's your preferred asset class?

My preferred asset class at the moment is Europe ex-UK equities, for two reasons. First of all we are seeing really solid economic growth coming through in much of the region, not just in Germany, that gets all the headlines, but think some of the troubled areas of the last ten years like Ireland and Spain that are seeing really solid recoveries. This isn't a play down problems in Italy and on-going problems in Greece, but I think we are going to see a proper cyclical recovery, gather momentum over the next couple of years. 

We are seeing inflation pick up, the ECB will start going back on its loose policy over the next year. That will be a tremendously positive signal to investors when that happens, and, what's more, we will see, I think, is that investors will realise that they have overstated the political risk of far-right populist parties. 

I think what we will see is Macron win in France and hopefully Angela Merkel will win the German elections in the autumn, but even Martin Schulz of the socialist SPD wins I don't see that being an issue. In fact you could spin it and that would bring Europe closer together and be a positive because he, along with Macron, are quite keen on that final touch to the construction of the Euro project which is banking and fiscal union, so I am positive over the eurozone equities over the next year to two years. 

And, finally, let's not forget they have massively underperformed against American equities and are trading at quite a substantial discount so they represent value by comparison. 

Click here to watch the full video with deVere Group's Tom Elliott.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall.The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.