The possibility that the UK will fall through the no-deal Brexit trapdoor at the end of the year grows daily. And by extension the profits outlook for many UK shares becomes increasingly concerning as we enter 2021.
There’s just 35 days between now and when the transition period is due to end. Yet trade negotiators either side of the English Channel are still to strike an accord to avert an economic catastrophe. In recent days the EU chief negotiator has warned that “time is short” for a deal to be struck and that “fundamental divergences still remain.” It’s a theme that Barnier’s British counterparts continue to echo too.
UK share buyers need to prepare for the worst and shape their investing strategy to reflect the risk of an economically-catastrophic no-deal Brexit. It doesn’t mean that people should stop investing in stock portfolios altogether, though. There are plenty of tactics UK share investors can adopt to protect their wealth and make big returns in the near term and beyond.
Buying multinational UK shares
One obvious play in this environment is to buy UK shares with significant geographic diversification. It stands to reason that those who generate either all or most of their profits from these shores are in most danger from a hard Brexit. Fortunately there are scores of UK shares on the FTSE 100 alone that, well, don’t.
Stocks like this include Footsie-quoted plumbing and heating giant Ferguson. This UK share generates 97% of underlying trading profits from the US and a further 2% from Canada. The thin remainder is generated just from British customers. Life insurer Prudential, meanwhile, generates all its profits from Asia, Africa, and North America.
I can also choose plenty of other FTSE 100 stocks if I want extra security through even-wider geographical diversification. UK shares like Reckitt Benckiser, Diageo, CRH, and Unilever operate across many continents.
Pound pressures
Another good strategy for UK share investors like me is to buy stocks that report in foreign currencies. This is because firms like this enjoy an extra profits bump when the pound drops. And sterling is likely to sink against other major currencies in 2021 if Britain follows through on a no-deal Brexit.
The boffins at HSBC reckon that sterling will drop to around 1.10 against the US dollar in this event. They reckon it will drop to around parity versus the euro too. Similar numbers are doing the rounds in many City forecasts too.
A great number of FTSE 100 companies publish their accounts in either the European common currency or the greenback. All of the companies I mentioned above, for example, report in currencies other than sterling. And these UK shares represent just the tip of the iceberg.
These multinational UK shares show that stock investors don’t need to be down in the mouth about a no-deal Brexit. There are still ample ways to make big shareholder returns however the transition period ends. And the good news is a lot of top stocks trade at rock-bottom prices following the 2020 stock market crash.
