On the other side of the coin, however, recent data from the ONS and the NIESR demonstrate the beneficial effect on exports of a weaker pound. As sterling fluctuates over the next two years, so too will the share price performance of the consumer and industrial sectors. It should be noted that the influences on sterling will also include global factors, not just Brexit-related drivers.

The fortunes of other sectors will come in and out of focus too. The issue of passporting rights will influence financial services stocks, while the mechanics of customs arrangements will be very relevant to industrial companies with cross-border just-in-time supply arrangements. Should the UK’s eventual trading terms fall under World Trade Organisation (WTO) rules, there will clearly be major implications for supply chains.

In the meantime, we believe that the ebbs and flows of the negotiating process should throw up valuation anomalies in a number of stocks as investors attempt to identify and calibrate the implications for individual companies. Our bottom-up stock-picking approach should serve us well as we look to exploit these mispriced opportunities when they emerge.

@POTUS – defining Trumponomics

The conventional wisdom prior to the election was that a victory for Donald Trump would be bad for equity markets. Instead, the expected “Trump dump” turned into a “Trump bump” as markets moved quickly to price in a consensus that the economy would benefit from the reflationary¹ bias of the new administration.

In terms of the market implications of the new president, our sense is that President Trump will govern as a transactional, “CEO-president”. This will lead to some unpredictability and increased idiosyncratic risks for investors, particularly since his policy positions are also more nuanced than those of most previous presidents. He will not be immune, however, to the normal constraints of congressional votes, time and money in furthering his legislative programme.

Trump’s commitment to deregulation is highly market and economy friendly and it is also actionable through executive orders without congressional approval. These, alongside the appointment of reform-minded officials, will lead to a reduction of red tape and lighter enforcement across a range of areas including financial services, energy, communications and employment.

Tax reform looks like a key legislative priority for Trump and congressional Republicans but the path to law will not be straightforward given the legislative complexities of process, scope and policy. The overall direction of travel is nonetheless clear, albeit investors seem some way from fully discounting the positive effect of lower tax rates and potentially higher capital allowances.

From an investment perspective, we feel sure that many stock and sector opportunities will emerge while the tax reform process plays out and expectations evolve, particularly on such matters as a potential border adjustment tax.

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