So far most of the big winners of the day have managed to hang on to their gains, thanks to continued optimism that compromise on both sides will lead to a deal. But such an outcome is still by no means a given – leaks from both sides of the negotiation hint at much work to do; hit another impasse and the relative harmony markets have briefly enjoyed this week could be quickly shattered.
Indeed, if this relief rally showed us anything it is just how significant the depressing effect of a potentially messy exit from the EU has been for UK shares, and how fragile sentiment towards the UK market is. As Chris Dillow points out in his column this week, the dividend yield has been a remarkably good indicator of an index’s future returns, and the All Share’s level has been flashing ‘cheap’ for some time.
So even if you remain sceptical of the Conservatives’ political sloganeering, there seems little doubt that a fatigued market is now sending the signal that it just wants to ‘Get Brexit Done’ and preferably with a deal. Alongside a recent flurry of acquisitions of listed British companies, Friday’s bounce also suggests there may be significant latent demand for cheapened UK equities that remain, as businesses, fundamentally sound – even if the interminable political wrangling is starting to take its toll on some.
There remains, of course, the messy question of what would then come next – leaving, after all, represents only the end of the beginning, with years of manoeuvring over the future relationship still to come. Businesses that have been busily preparing for Brexit – among them the heavily-affected but largely overlooked gambling industry, which we examine in this week’s sector focus on page 58 – may have to reshuffle their plans again. At least investors could now be able to assess those plans with more clarity.
Yet, as we explore in this week’s cover feature and No Free Lunch column, in many instances it will be down to new chief executives to deal with the realities of the post-Brexit business, with record numbers recently deciding to hand over the reins to new blood. As if Brexit wasn’t the source of enough uncertainty, such transitions can be nervous times for investors, and we’ve tried to work out what may come next for several affected companies. But as the sorry saga of Neil Woodford comes to an end, sometimes it seems to be a case of better the devil you don’t know.
