We are set for a nervy few days as the Scottish referendum debate, which has run as long as the Oscar Pistorius trial, comes to its merciful conclusion. It is reasonable to think that sterling will be hit if the Scots vote Yes for independence but any dip in share prices will be a buying opportunity.
I am more relaxed about the outcome than most commentators. If the Scots want independence, that’s fine with me. They already have a fair amount of autonomy and are now promised more by the panic-stricken Unionists, which is probably a less satisfactory arrangement for all concerned than outright independence.
Sectors that, in theory, will be hit most by a Yes vote are retailing and financial services. Retailers are arguing that distribution costs in Scotland, where the population is spread more thinly, are in effect subsidised by English consumers.
Independence does not alter that equation. The threat of higher prices north of the border sounds more like propaganda for the No campaign than a serious consideration, especially if Scottish taxes rise and consumer spending is reduced. The more exposed any retailer is to Scotland, especially where that exposure is outside the more heavily populated central belt, the less attractive that retailer is to investors whatever the outcome of the vote.
Financial services, will, I believe, also suffer much less from a Yes vote than many commentators suggest. Those such as Royal Bank of Scotland (RBS) and Lloyds (LLOY) that are based in Scotland will suffer the inconvenience of moving their headquarters to England but that will be a fairly small one-off cost. Operations and staffing levels in Scotland, they admit, will be generally unaffected.
No company with profitable operations in Scotland will bail out for the sake of it. Any fall in share prices next week will be a buying opportunity. For all the bluster, it will be business as usual.
A Victory of Sorts
Quindell (QPP), which according to its website provides ‘sector leading expertise in consulting, software, outsourcing and broking solutions’, is one of the more controversial companies on the UK stock market, not least because most people like myself have little idea what it actually does.
I’ve tried reading the website and find lots of computer-speak but little plain English. I don’t invest in companies I don’t understand.
Quindell won a victory in the English High Court this week, having sued American activist investor group Gotham City for libel. This is a pyrrhic victory, since Gotham City did not bother to defend itself in London’s notorious libel tourism court and is unlikely to pay damages or costs. The criticism has not been put debunked under the microscope of cross-examination.
I cannot see the merits of companies suing critics. Quindell ought to be strong enough to ride out the short selling storm stoked up by Gotham City. Short sellers have to close their positions at some point and become buyers, at which point the shares should jump.
The accounts show revenue and profits soaring over the past two years yet the shares have been sliding. I don’t know who is right in this spat but I don’t intend to find out through buying the shares.
House Prices Cool
It looks as if the most overheated end of the housing market is cooling, which is good news for house builders. The last thing we need is another bubble.
Nonetheless, the market is not turning cold, nor can it do when demand so clearly outstrips supply. Barratt Developments (BDEV) is the latest builder to produce figures up to increasing expectations. The once non-existent dividend is quadrupled and in addition special dividends totalling £400 million are promised over the next three years. Barratt, in which I have a holding, has net cash for the first time in eight years.
I note that highly successful fund manager Neil Hermon has Bellway (BWY) and Taylor Wimpey (TW.) as the two largest holdings in his Henderson Smaller Companies Investment Trust (HSL) and he currently finds the UK housing market appealing. Investors should follow his lead and retain their holdings.
