In a recent article I discussed the possibility of Boris Johnson climbing the mountain of British politics in late July.
In it I explained why defence stocks could thrive — and utilities specialists could fall — but the weapons builders aren’t the only ones that could take off in the weeks and months ahead. Indeed, I think another sound idea for a Boris premiership would be the purchase of precious metals producers, those classic safe havens in uncertain times.
In that aforementioned piece I mentioned how Boris in Number 10 could prompt further rounds of political pyrotechnics to be launched from the Palace of Westminster. And this could supercharge buying into dedicated gold and silver miners, from FTSE 100 big hitter Fresnillo (LON:FRES) to smaller operators like Acacia Mining and Highland Gold Mining.
What’s more, diversified miners like Anglo American (LON:AAL) that have exposure to the platinum group metals could also rise, given these assets’ safe-haven qualities. In my opinion, though, investors should be careful here given the threat of material oversupply — and thus commodity prices — in the medium term in some of their other metal markets.
Boris bother for the banks It may also be a good idea to sell out of Britain’s banks in the event of a Johnson premiership, and more specifically those with high exposure to the domestic economy like Lloyds and Royal Bank of Scotland (LON:RBS).
It’s hardly a shock that one of the architects of the Vote Leave campaign in 2016 is a supporter of EU withdrawal at the earliest possible moment and even if it means a disorderly, ‘hard’, Brexit. Indeed, exiting the continental trading block by the new date of October 31 (as per March’s Article 50 extension) is a key part of his campaign to seize the keys to Number 10.
Economic growth in Britain has slowed to a crawl recently as uncertainty over Brexit, and more specifically the spectre of a catastrophic no-deal withdrawal, has continued to linger. This slowdown could be the precursor to something much worse for the country (and thus the banks) if the UK indeed jumps off the cliff. Government itself has estimated that domestic GDP could be 9.3% smaller should it fail to strike a deal in talks with EU chief negotiator Michel Barnier.
Pound pressure The rise of Boris to the top step, and consequently the higher chances of a hard Brexit, would also have a dramatic effect on the value of sterling in all probability. The dive in the value of the pound versus the US dollar and euro since the beginning of May is a strong indicator of what could be in store.
And how can share pickers capitalise on such a scenario? By investing in shares which report in foreign currency and thus receive an extra earnings bump in the event of sterling weakness, of course. The FTSE 100 is jam-packed with such companies, and there is a broad selection from which one can choose, from drinks manufacturer Diageo (LON:DGE) and hotelier InterContinental Hotels to pharmaceuticals giant AstraZeneca.
There are clearly several ways for investors to play a Johnson administration, and although his ascension to the summit isn’t yet a done deal, it’s a good idea to plan for this and to think about how it would affect your existing share holdings. It’s time to get busy.
Royston Wild owns shares of Diageo. The Motley Fool UK has recommended AstraZeneca, Diageo, Fresnillo, InterContinental Hotels Group, and Lloyds Banking Group (LON:LLOY). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019