Brexit has Boosted Stocks More than Remain, says Hobson

THE WEEK: Two months ago Rodney Hobson bought stocks hoping to be boosted by a Remain vote - he now says he may have got the result wrong but the shares are up

Rodney Hobson 5 August, 2016 | 12:04PM
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Two months ago I urged readers to use up their current year’s ISA allowance by buying shares ahead of the referendum on the grounds that a pro-EU vote would send equities sharply higher. Turns out I had the right idea, but wrong reasoning.

It has long been uneconomic to put cash in a savings account. It is now even more pointless

I did say that, in the unlikely event of a Brexit vote, shares would rebound from any fall and they have done so with a vengeance. Shareholders have almost certainly seen far heftier gains than they would have got from a Remain vote.

It was, though, only when the Bank of England decided to push the panic button and reduce interest rates while reviving quantitative easing that the true benefits of shareholdings became evident. The FTSE 100 shot up more than 100 points within minutes of the decision and the FTSE 250 added 250 points.

We are not quite at the point where savers will be charged for their thrift but we are not far off. It has long been uneconomic to put cash in a savings account. It is now even more pointless.

Nor are bonds worth holding. Another £70 billion worth of quantitative easing will depress returns even further, especially for gilts but also for corporate bonds. When the time comes to unravel the Bank of England’s holdings, the fall in bond prices will be all the more vicious.

Cash and bonds paying low rates of interest will look even more unappetising when inflation inevitably takes off following the fall in the value of the pound. Imports will become more expensive and fuel, priced in dollars, will reverse the falls of the past two years, sending inflationary waves through the economy.

The only other investment apart from equities to come up trumps over the past month for UK investors has been gold, which is now worth more than £1,000 an ounce. The gain has not been so pronounced in terms of US dollars but the fall in the value of the pound has magnified the rise in sterling.

Regular readers will know I am not a fan of gold as a long term hold. However, I don’t blame anyone for keeping a small gold holding in their portfolio as a hedge for the time being. There are many uncertainties for the UK and Europe as we negotiate our leaving terms and although the picture is more hopeful in the US there are still mixed signals emerging from official data.

Since gold provides no income, the trick is to know when to get out, which depends more on gut feeling than economic factors. I think the price will edge up further but holders should remember that it is better to sell too soon than too late.

Hikma Hiccup

An investor called Elaine asked me on Twitter @rodneyhobson for my views on Hikma Pharmaceuticals (HIK) this week. It is not a company I normally follow and after the latest update I won’t be going so any time soon.

Curiously, the latest statement refers to “revised profit expectations for the full year” but nowhere in the update does it say what change there is for the group as a whole. Changes in the three separate strands of the business seem superficially to be mixed but broadly neutral.

Yet there must have been something pretty horrendous, for the shares dropped 17% on a day when the market as a whole gained 1.5%. I read the statement three times but failed to see any justification for such an adverse reaction.

I could work my way through previous statements to get to the truth but why bother? I never invest in companies that I feel are not being upfront about problems and I shan’t be going anywhere near Hikma.

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.

 

 

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Hikma Pharmaceuticals PLC1,872.00 GBX1.46

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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