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Brexit fears? Buy dollars, builders and Vodafone
David Kempton has moved his cash into dollars and invested in house builders and Vodafone as he looks for stocks immune to Brexit worries.
Writing this now in Cape Town, I am unswayed by opinions this morning from friends and colleagues; so far today I’ve spoken only to locals who are unlikely to have even heard of Brexit.
Hence my uncorrupted view remains, unhelpfully, powerfully sitting on the fence. My heart says ‘out’, my head says ‘in’ and I suspect that view is not unusual.
An early morning electronic skim of the UK press tells me that 60% of both the Institute of Directors and manufacturing trade body the EEF will vote to stay in the European Union. Clearly these will be informed opinions of people voting as befits their businesses and their jobs.
Nevertheless, they only get one vote each, just like the population at large, who may not give the issue quite the same consideration, whilst their vote counts just the same. Referendums are tricky to predict – hard for the pollsters too, since it’s impossible to forecast how many will turn out to vote.
We are going to be drowned in media attention over the next four months until 23 June and I suspect the electorate are going to get pretty bored by it all, just like every long lead in to any election. No matter, at the end of the day, we should all vote based on how we consider it affects our jobs, inflation and prices.
We will hear many arguments for the damaging effects of negotiating a myriad of trade agreements, all negated if we leave the EU, and the impact on the defence of our small island from external wars and the constant fear of the enemy within.
Boris boost for Brexit
The news that Boris Johnson will lobby for an exit is very significant for the ‘no’ campaign. Is it a play for the leadership? Almost certainly, having recently refused various senior roles in the government, it would look that way.
I think Michael Gove will be very important to the exit campaign too. He’s been out of the limelight recently, but I sat next to him at dinner before the election and was very impressed with his charm, intellect and instant grasp of all matters. We will hear a lot from him too in the next weeks and he’s a powerful orator.
Meanwhile, what of Scotland? First minister Nicola Sturgeon makes it clear that Scotland would stay in the EU should Britain vote to exit. Thus we could face another Scottish independence vote. It could be a daunting year for the voters but potentially historic for Britain.
Put cash in dollars
So what does an investor make of all these influences over the next weeks, as polls swing one way and another? Markets hate uncertainty, so we are likely to see a weak sterling; renowned pundits talk of a 20% hit in the event of an exit vote. I put my cash in dollars a while ago and would suggest it’s not too late to do that still.
The FTSE 100 will be undeterred, since 80% of it is international anyway (17% Europe ex UK) largely unaffected by local UK issues. But what will overseas investors make of it? Will major fund managers change their UK allocations?
I have been at the Mining Indaba conference in Cape Town, a low-key affair again this year compared to the jamboree of recent years when mining stocks were flying, but now still giving the impression of an industry in hibernation. I come home with strong views on where the sector goes from here, but this for another time.
I bought three stocks: a gold miner, a potash producer, both risky speculative small purchases, but also a good unit in Vodafone (VOD).
Vodafone a good call
Vodafone is not without risk, considering India’s threat to seize all local assets unless the company pays £2.1 billion. An odd demand considering Prime Minister Modi’s statement earlier this month about stopping hounding companies for retrospective tax.
In a remote village in Zambia last week I saw a virtual cashless society working highly efficiently. Some payments by barter (we can’t replicate this easily) but most general payments made by mobile phone – and we will replicate that.
The developed world is only just starting to pay by mobile phone, but in perhaps three years it will be the norm, certainly for the younger generation. Vodafone is very good at this all over the world. It seems strange that remote villagers all over Africa lead the way.
A Brexit vote has little relevance to Vodafone with only 11% of revenues in the UK (with 10% from India). Meanwhile relax with a 5% yield and await the growth and resolution of the issues which seem to hold back the share price.
I enjoyed ‘my’ MJ Gleeson (GLEG) results yesterday. Profits 130% higher, divided raised by two-thirds and their strategy of low land price, low sales price (but gross margin 31%) is aimed at starter home couples on a living wage. Buy more and ignore Brexit, it’s irrelevant here, whilst Bovis (BVS) results, also yesterday, illustrate the strength of the sector.
So back to Brexit and having said all the above, I fear that if the vote was tomorrow, I would follow my head, not my heart, and vote to stay in, being the ‘wimpish’ safer option. That might seem unadventurous but the whole EU party might just break up anyway soon. To paraphrase Boris, ‘an old analogue solution for the new digital society’ won’t work any more.
David Kempton is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.
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by David Kempton on May 24, 2016 at 17:15