Brexit: Worst-Case Scenario Hits Bank and Supermarket Stocks

A "disorderly" no-deal Brexit would hit banks, autos, supermarkets and aerospace, say Morningstar equity analysts

Alex Morozov, CFA 10 December, 2018 | 7:23AM

Betting on the outcomes of political debates isn't our forte, and the upcoming UK House of Commons vote that could determine the direction of the world's fifth largest economy for the foreseeable future is no exception.

As bottom-up, fundamental, long-term-focused analysts, however, we do want to ensure our industry analysis and models adequately account for the macroeconomic and political risks. In this research, we use a worst-case scenario of a disorderly no-deal Brexit to stress test models for our companies with the greatest exposure to the UK economy and Brexit.

While we identify a number of firms that could face long-term adverse developments following a no-deal Brexit, namely in the automotive space, we also see most disruptions as short term in nature and thus unlikely to materially alter our long-term views. We believe we adequately account for the heightened risk via our uncertainty ratings and see a number of investment opportunities with the market getting jittery as we get closer to the Brexit Day.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Associated British Foods PLC1,945.00 GBX-1.52
Barclays PLC117.76 GBX5.18
Bayerische Motoren Werke AG58.69 EUR2.18
HSBC Holdings PLC377.80 GBX1.21
Lloyds Banking Group PLC30.46 GBX2.42
Morrison (Wm) Supermarkets PLC182.85 GBX2.38
Reckitt Benckiser Group PLC7,614.00 GBX0.63
Rolls-Royce Holdings PLC266.70 GBX4.06
Sainsbury (J) PLC193.75 GBX3.39
Tesco PLC214.80 GBX1.51
The Royal Bank of Scotland Group PLC121.50 GBX2.92
Unilever PLC4,193.00 GBX-0.52

About Author

Alex Morozov, CFA  Alex Morozov is the director of the health-care team at Morningstar.

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