While I have my personal views on Brexit, I try to look at political issues purely from the standpoint of how it affects investments. With two months to go, the vote over whether we should stay in the EU seems to be having remarkably little effect on markets.
This is a big disappointment. I felt sure that the uncertainty would cause collywobbles, thus producing great buying opportunities just when the ISA allowance for the new financial year became available. As with the Scottish referendum, however, the London stock market is taking the impending vote in its stride.
Investors see the price of oil, economic growth in China, deflation in Europe and a host of other issues as far more important. Thus the FTSE 100 index looks to be establishing the former ceiling around 6,200 points as a new floor.
I think the assumption is growing that we will vote to stay in. If that is the case, then investors should be buying shares now before the big lurch upwards that will on that scenario greet the outcome. The risk, obviously, is that we vote to come out and shares slump.
There is a third possibility that really muddies the waters, and it is a genuine one. We vote to come out but we actually stay in. After all, France, Ireland – twice, Denmark and the Netherlands – twice, have all voted against EU proposals and have either been ignored or told to vote again.
Given that the majority of MPs are in favour of EU membership, I do not see how any government can bring us out and the EU would rush to offer concessions that would allow the UK government to argue that the referendum was no longer valid.
For me the odds favour buying shares now if you have any spare cash. The year so far has been far better on the stock market than the opening months of 2015 and the uptrend is likely to continue through the next couple of months at least. In the meantime, any shares you purchase will start to earn dividends.
I see any rise in share prices as lasting; any fall is likely to be reversed before the end of the year. We were told that London could not survive as the financial centre of Europe if we were not in the Euro. It did. We will survive a vote for Brexit if it happens.
Saga Shares Cruise Up in Value
Readers who follow me on Twitter will know that I rated Saga (SAGA) shares as good value as the share price edged back above 200p this week in the light of encouraging results for the year to 31 January.
Pre-tax profits leapt by more than 50% and the dividend total soared from 4.1p to 7.2p, with the promise that the pay-out would be higher in future than was previously expected. Cash flow was strong, reducing the need for borrowings, a very prudent step.
I hadn’t reckoned on what happened next. After the market had closed, private equity investors Acromas announced that it would offer its remaining stake of 31.5% to institutional investors. I feared that if the placing was at a discount it would drag the shares back down, and indeed the price achieved was 195p.
When trading reopened, investors decided that a 3% discount was a pretty decent result and the shares cruised to 210p before settling back. The fact that such a large overhang has been removed in one fell swoop is a very positive signal.
Saga shares were floated at 185p almost two years ago and the highest they have reached is 224p last July. They are still worth buying should they dip again below 205p.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
