Three years of Brexit Debate, with the UK striving but failing to leave the European Union. During this time nobody has seemed to strike a chord. Extension after extension, hiccups in approving deals and decisions have prolonged the process even more, with the final deadline set to be January 31, 2020 – yet at that point Brexit will be far from done.

Going back to what happened in October 19, Boris Johnson attempted to put his revised deal to Parliament, however the vote did not go through. Members of Parliament chose to postpone a vote on the deal until the legislation needed to turn the withdrawal agreement into UK law was completed. This meant that Johnson had to send a letter to the EU to ask for another Brexit delay. This meant that Brexit had to be pushed to January 31, 2020.

An exit on January 31 will represent the end of stage one, the point where the United Kingdom ceases to be a member state of the European Union. From that date, the country would be in an 11-month transition period, which expires on December 31, 2020. The government is set to use this period to sort out its relations with the EU According to the Institute for Government Researchers, these negotiations typically take about four years. When looking at the recent free-trade agreement signed by the European Union, it is clear that an 11-month transition period is clearly not enough.

Determined Boris Johnson said that he will not ask for an extension, and will stick to the December 31, 2020 deadline as the UK leaves the transition period without a comprehensive trade deal.

On December 12 of this year, Johnson will be hoping that his election gamble will pay off, and secure a majority that can pass the deal and move on to the next phase of Brexit – securing a future deal.

This week the Pound rallied to a six-month high against the Euro, as the conservatives backed the Prime Minister’s plan, raising optimism for a smooth departure from the European Union. The Sterling strengthened versus all of its group of 10 peers, after Johnson stated that all Conservative candidates have signed a pledge to vote for his Brexit deal, if elected next month. The positive rally in the exchange was triggered by strong polls suggesting a possible win for the Conservative party, with Jeremy Corbyn’s Labour Party struggling in the opinion polls.

According to Jane Foley, Head of currency strategy at Rabobank, the performance in the last few weeks has been linked to the perception that if the withdrawal agreement gets through Parliament, then Brexit is done and the Sterling goes up.

A Conservative win would mean that Johnson can push through his Brexit plan and remove some of the uncertainty, which has been a function of investing in the UK since the Brexit referendum in 2016.

On the other hand, a win for the Labour Party could possibly hurt the Pound, given plans to increase spending, nationalise utilities, and increase tax brackets for the rich – increasing the risk of capital fight.

Following the strong polls confirming that the Conservatives hold a healthy lead, the Sterling gained 0.5% versus the Euro, and 0.7% against the Dollar respectively, following the release of the polls – while the UK 10-year government bonds yield was steady 0.73%.

For months Brexit has dominated headlines, and will still remain for the months ahead. From a volatility point of view, we still ought to expect volatility between the remaining of the fourth quarter of this year and the first quarter of next year, should Brexit take place .This ongoing uncertainty means investors will remain cautious about buying UK equities. Investors may begin to speculate about the possible consequences of the post-election result, regarding the future health of the UK economy. The outcome will be a burden on the value of the stock market, especially those sectors focused on the UK economy. It is understandable to fear uncertainty, from the time of writing to Brexit day, yet one has to wait and see what would be the outcome of this election, and whether there will be a feasible agreement between the EU and the UK.

 

Julian Mangion, ICWIM, B Com (Melit), is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]