The great cry of angst over the referendum result has subsided and we investors must work on the basis that the vote will stand and Britain will leave the European Union with some sort of trade deal. A 4% margin for the out vote was just a little too large to overturn.
Of the two contenders to be the next prime minister, one is for coming out and the other is pragmatic enough to realise that the Conservatives can be reunited outside but not inside the EU. I have no doubt that the Brussels elite, who do very nicely on the gravy train, would be quite happy to make ordinary Europeans suffer in order to teach the UK a lesson but individual governments have their electorates to face so some deal will probably be forthcoming.
A fortnight on, one recurring theme of company updates is that very little impact has been felt yet, contrary to the impression one may have got that the world has just ended. While there are frequent references to uncertainty in the run-up to the vote, there is scarcely any evidence of it.
This may be because of the widespread assumption, shared by me and apparently also the leaders of the Leave campaign, that Remain would win. However, it’s worth noting the wide range of companies stating that there has been no immediate impact post-referendum either.
So sit down this weekend and think about your investments in a calm light. International stocks have held up well. Hence the FTSE 100 index is still at levels seen last August.
Quite right. These companies have been affected over the past two or three years by the strength of the pound. They are still reporting that foreign exchange movements have knocked millions of pounds off revenue and profit figures when translated into sterling.
Silver Lining to the Falling Pound
The slump in the pound since the referendum has changed all that. It is quite possible that sterling will creep back up over the rest of this year as those who speculated against it cash in their profits’ The feeling may grow that the fall was overdone. However, we are highly unlikely to get a strong currency back until there are real developments on the political and trade fronts so profits of UK-based multinationals will be inflated during their current financial year.
Two such companies stood out this week. One was Robert Walters (RWA), the recruitment giant. Net fee income rose 16% in the second quarter. Although that was reduced to 10% in sterling terms, shareholders won’t be complaining.
The Asia Pacific region, where there is supposed to be a slowdown, was up 14% and four countries produced record results. Supposedly sluggish Europe shot up a massive 37%. Even the UK saw growth of 7%.
The shares rose 6% on the update but are still way below the 475p level they reached last August. Recruitment stocks have been out of fashion but there is surely more upside for Walters.
Pest control, in contrast, has not fallen out of favour if Rentokil (RTO) is anything to go by. It is continuing its expansion in North America with the £23 million purchase of a company called Residex.
I just worry a little when companies go on an acquisitions spree – this is the 20th such buy already this year – but there is no arguing with the Rentokil share price, which has been gaining steadily since the start of 2012.
If you are nervous, buying solid international companies should work well but not spectacularly, since good prospects are mainly reflected already in share prices.
Better, if slightly riskier, possibilities are now to be found in UK-oriented stocks, where falls have been greatest. This is where I will be looking to invest the rest of my ISA allowance.
There are signs that investors are waking up to the excessive sell-off of housebuilders, for example. Bovis (BVS) and Persimmon (PSN) both reported that houses are still selling in greater numbers and at higher prices, even in the past two weeks.
