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Press release
13 Dec 2018

Theresa May clings on as UK equities approach bargain-basement prices

Richard Buxton comments on the result of the Conservative party’s vote of no confidence in Prime Minister Theresa May.

 

Had it taken place 10 days ago, the confidence vote – and May’s victory – might have boosted the Prime Minister’s authority sufficiently to enable her to get the aborted deal vote through. She might even have obviated the need to announce that she does not intend to steer the Tory party into the next General Election – assuming, of course, that it occurs after March 2019. Now however, she is so ‘on the ropes’ that I cannot really see winning the confidence vote at this juncture helping very much; in 24 hours, in all probability, this will be little more than old news, and will do little, if anything, to change the EU’s negotiation tactics.

It may enable her to delay a vote on the deal in Parliament until February, allowing her to capitalise on fears of a no-deal exit from the EU to such an extent that sufficient rebels may fall into line. In the meantime, she needs to secure from the EU a concession on the Irish backstop; if she does, I believe we can expect a significant number of the rebels to bow to her wishes.

All of the above said, May’s reaffirmation as leader for at least 12 months reduces the likelihood of her considering alternatives to the proposed deal, such as the so-called ‘Norway-plus’ approach, which would see the UK remain within the European Free-Trade Area. From the perspective of the financial markets, this would be preferable to the deal presently on offer, but it would be deeply unpalatable to the hard-line Brexiteers who caused the vote of confidence to be triggered in the first place. Ergo, we need to be careful what we wish for at this stage.

As a UK equity investor, my view is that we have now entered the bargain basement buying zone for domestically focused stocks. With some shares down up to 40% from their 12-month peaks, there are some extraordinary opportunities to be seized; it is now, more than anything, a question of timing when to press the ‘buy’ button.

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