It has been 4 years since the United Kingdom voted to leave the European Union. No one could have known that it would have taken this long for the Brexit deal to take place after the EU referendum in June 2016, and the government’s plans for a trade deal have certainly been affected by the pandemic. The UK economy has seen its worst recession in over 300 years and UK assets have been underperforming year on year. But with the transition period ending on 31 December 2020, and the challenges created by both the Brexit and the coronavirus crisis, investors are amongst economic and political uncertainty.
There have been several twists and turns in the Financial Times Stock Exchange 100 Index (FTSE 100 Index) as the process of Brexit continues, as well as the economic impact of the pandemic. The UK stock market has seen a lag in performance compared to the other key world financial markets such as Europe, the US and Japan. This has also meant that some investors are avoiding the UK stock market completely.
Uncertain negotiations over trade deals with the UK and EU have affected the investments in the UK market, as well as the type of companies that make up the FTSE 100 Index. As oil companies make up a large portion, this has had a huge impact. The price of oil was at an all time low during worldwide lockdowns. It could be that the UK stocks to watch are those in the technology sector, although there are few in the FTSE 100 Index. This has been a result of the surge in technology usage due to the pandemic and national lockdowns. Some investors have however turned to the US for this type of investment with the likes of stocks in Facebook and Apple.
As investments may fall as well as rise, investors should bear in mind CFD Trading, to profit when prices fall and take a position on falling prices, with leverage. CFD Trading allows traders and investors to speculate on the price movement of the assets. With leverage trading, this also allows for a significant increase in your gains as well as our loses, as you need less capital to trade in comparison to owning the asset in a more traditional way. This is one way that investors can capitalise on the effect that Brexit has had on the stock market and UK assets, as well as diversifying their portfolio.
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Investors are also expanding their portfolios by approaching investments in a worldwide manner and a different range of assets. This could mean that there would be little effect of the Brexit aftermath, and gains in these areas may offset the losses in others.
The state of the UK stock market after Brexit is also dependant on the British pound. A weaker pound in some cases can be beneficial, as multinational companies in the FTSE 100 Index make their revenues and earnings internationally. A better exchange rate could see a rise in profits. On the other hand, this could mean that UK companies that result in overseas profits, could see these reduced when exchanging back into sterling.
Investors are preparing on the basis of companies that could either do well in a weak sterling or a strong sterling situation, depending on the outcome of the Brexit deal. Investing in CFD trading also allows investors to predict the price movement of the assets of these companies, relevant to the strength or weakness of the pound. Another position that investors are taking, is watching the UK stocks and shares that will have little impact from the value of the British pound, for example in UK real estate and property companies, and UK banks such as Lloyds.
With uncertainty about the UK stocks post Brexit, it might be tempting for investors to jump ship. However, with CFD trading you can benefit from the falling prices. Plus, it’s worth remembering the long-term goals of the investment. When there is turbulence in the UK market, leaving behind certain investments could mean missing out on gains when there is any recovery in the market and could result in more losses.