UK stocks to watch for a soft, hard, or no Brexit at all

UK stocks to watch for a soft, hard, or no Brexit at all

These are uncertain times for UK stock investors and with markets on tenterhooks, most investors are battening down the hatches and considering the various scenarios that might play out over the coming days and months.

There are a number of sectors to watch should the UK leave the EU either with or without a deal, reverse Brexit or even hold new elections.

First up is the housebuilders. They are one of the most sensitive sectors to Brexit given the impact the uncertainty has had on house prices and the consumer appetite to spend the money it takes to buy a property.

Analysts at Liberum have said the sector could see a 20% upside in the case of a smooth Brexit.

According to UBS, housebuilders have become a Brexit football being kicked around by the market, but the bad news is already priced in.

Official statistics aren’t helping: Two data sets alone showed UK house prices dropped for a second consecutive month in December and that actual selling prices grew at the slowest pace in over six years.

Just like residential property, the same Brexit uncertainty has hit the value of commercial real estate, particularly in London.

Waning consumer confidence has also harmed footfall in British shopping malls and streets.

This has weighed on stocks like British Land, Land Securities, and Hammerson, which also owns large stakes in Irish shopping centres and whose shares are down about 34% in 2018.

Barclays analysts have said near-term sentiment around the sector is likely to remain negative, but that the London office market, in particular, has held up well post-the Brexit referendum.

Still, risks are skewed to the downside, they say.

Lenders, including Lloyds and RBS, the Ulster Bank-owner, would in particular benefit from the extra degree of certainty a Brexit deal would bring and the boost it would give to consumer confidence.

Conversely, no deal would have the opposite impact, though the Bank of England recently said that the UK’s lenders would be able to cope in even the worst outcomes.

IAG, which owns Aer Lingus and British Airways, and EasyJet and Ryanair all have significant revenue exposure to the UK. The risks for tourism firm TUI should be limited given its current valuation.

Meanwhile, for retailers, Jefferies analyst James Grzinic wrote that “the complex Brexit process appears to have strongly impacted consumers’ willingness to spend in the critical run-up to Christmas”.

That could affect most names in the UK, particularly those that normally see big customer spending in the festive period like super-markets Tesco and Sainsbury. Recent updates from the retail sector make for grim reading.

Sports clothing and equipment retailer Sports Direct International and online fashion retailer Asos have both reported a sharp slowdown in November.

Lower spending in the UK would also put pressure on pub and restaurant chains like Greene King, Mitchells & Butlers, and Restaurant Group.

The kneejerk reaction to the UK scrapping Brexit would likely be positive across the board, but the one area where that may not be the case is in those Ftse-100 names that earn the majority of their money overseas.

This would include the likes of drugmaker GlaxoSmithKline, Diageo Plc and big defensive stocks such as British American Tobacco.

Should the UK hold new elections, increasing the chance of a Labour administration, utilities would be the key sector to watch.

A UK Labour government would bring the risk of nationalisation.

The party has said that it would take water utilities including the likes of Severn Trent, United Utilities, and Pennon Group back into state ownership.

RBC Capital Markets analyst John Musk said in a November report that nationalisation remains a remote risk given it would require “many ifs” to materialise.

Bloomberg

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