The big surprise of the Brexit debate for me so far has been the remarkable lack of reaction in the markets to the prospect of a vote to leave. Perhaps some of the warnings have got a little too extreme – World War Three, anyone? – or perhaps the markets are confident that we will vote to stay.
Carney got a little carried away with threats of a recession if we leave the EU
Nonetheless, this is, for investors, turning into the Scottish referendum mark II and I remain convinced that it is right to stay fully invested and hang the consequences.
Another possible reason is that perhaps life really will go on if we leave. I had this thought again when I read the AGM update from housebuilder Bovis Homes (BVS), which said that no discernible impact has been felt from the impending referendum so far.
Nor, when you think about it, is it likely to be in this sector. Even if all the EU citizens went back home and there wasn’t a corresponding mass return of expatriate Brits, we would still be short of houses. Bovis says that there will be more completions in the second half, after the Brexit vote, than in the first half, just as happened last year.
Bovis shares have unjustifiably lost nearly a third of their value from a peak of £12 last August and, just as they looked to be on the rise again, they slipped back on the update. When they fell even more heavily the following day I decided to nip in and buy a stake.
My only reluctance was that I already own shares in Barratt Developments (BDEV) and Taylor Wimpey (TW.) and was a little reluctant too overload my portfolio with housebuilders. The three combined stakes form about 15% of my current portfolio but only about 6% of the actual outlay, which shows how much shares in my first two investments have soared.
I was even more pleased when Barratt issued a similarly encouraging update. Barratt shares have also come well off the top but, as with Bovis, this is only because they had raced ahead too far. The business is fundamentally strong.
Finally, along came Galliford Try (GFRD), which is more into construction than Bovis or Barratt but I still regard it as being primarily a housebuilder. Like Bovis, it has seen its shares lose a third of their value over the past nine months, a serious overreaction.
Galliford is still working off the last remaining legacy construction contracts won by underbidding on price to produce poor or non-existent profit margins. Otherwise all three strands of the business are growing well.
I intend to remain overweight in housebuilders. This is the best defensive sector in the Brexit debate in my opinion.
Mark Carney Wades in on Brexit Debate
On the subject of Brexit, I suspect that the intervention of Mark Carney will prove a defining moment. Just as David Cameron was looking increasingly desperate – evoking Commonwealth war graves was a real sick-bag moment – up pops the Governor of the Bank of England to add a more measured tone to the dire warnings.
Admittedly even Carney got a little carried away with threats of a recession if we leave the EU but he is seen as independent and knowing something about finance and the economy so his warnings are likely to carry weight with the general public, who are unaware that the bank’s record on forecasting leaves a lot to be desired.
Even as he spoke, Carney was revising down previous growth forecasts, a reminder of how difficult it is to see more than a few months ahead.
Carney’s warnings sent shares lower. I took the opposite view. His warnings make a vote to remain in the EU more likely and therefore, if you believe the Brexit doomsday scenario, make the end of the world less likely. Another reason to stay invested.
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.
