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Our Take on Brexit and May's Resignation

Holly Black

Editor's note: As British Prime Minister Theresa May announced her imminent departure, Morningstar U.K. caught up with Morningstar Investment Management's Dan Kemp to find out what it means for investors.

Holly Black: Welcome to the Morningstar series, Market Reaction. I'm Holly Black. With me in the studio today is Dan Kemp. He is chief investment officer for Morningstar Investment Management. 


Dan Kemp: Hello, Holly.

Black: We're here because we've just heard that Theresa May is going to step down as prime minister on June 7. What does this mean? Are we finally going to get some clarification on Brexit?

Kemp: Well, that will be nice, wouldn’t it? I think it's all that's dominated our lives over the last few years. But, honestly, no. I don't think from an investment perspective, we are going to get that clarity, partly because as you go into a leadership election, we don't know who is going to win that election. Obviously, the Conservative Party at the moment is broken up into lots of different fractions and with lots of different views on Brexit. And so, what we've really entered is a time where the uncertainty around Brexit has actually increased. The range of possible outcomes has got bigger. And so that's a more difficult time for investors than maybe it was a couple of months ago where, although everyone was panicking about Brexit, there seemed to be a clear path forward.

Black: Theresa May is going to stay on while there is this leadership contest. The favorite at the moment is Boris Johnson. What would that mean for markets? Would there be particular sectors that did well or didn’t under a Boris Johnson leadership?

Kemp: Well, again, I think this is one of the great challenges of investment--that politics is very difficult to predict even when there is a clear leader. There has been a clear leader in a few elections in the recent past. We can think of the U.S. election or even the Brexit referendum, and that clear leader didn’t actually emerge as the victor.

Firstly, when predicting politics, that's very difficult, and it's even more difficult to predict the outcome. And so, as an investor, and particularly a long-term investor, what we'll be focusing on at the moment is the valuation that we see in markets, and really trying to ignore all the noise that comes from that short-term politics. 

We don't know who will get elected ultimately. We don't know if its Boris, what he will do or indeed what the European Union will allow him to do. And so much better to focus on what we do know, which is the current valuation of assets and look for opportunities where things become cheap.

Black: Obviously investors are going to be thinking today, what does this mean for my portfolio. Should people be reacting? What does it mean?

Kemp: We'd always recommend prioritizing research over reaction. Where you see very strong price movements, that can create opportunities. Typically, when you’re entering into a period of uncertainty you find that the price of more defensive assets gets higher, they're a worse value, and the price of more adventurous or economically sensitive assets get lower. And so, as these trends play out, then it maybe that there's an opportunity to pick up some assets, which have already been unloved and they're even more unloved. We've seen some bargains in the UK market, there may be many more bargains to come. But really focus on that research rather than reacting because there's a danger that as the news flow develops, you get whipsawed into changing your mind.

Black: I suppose the thing to keep in mind is, if you're not sure, just don't do anything.

Kemp: Absolutely right. Just keep looking at the research, keep looking at companies, keep thinking about the long term. Try and ignore that short-term noise as much as possible.

Black: And keep drip feeding in and that's how you pick up the bargain.

Kemp: If you're a long-term investor, absolutely, that's a sensible way of investing to not put all your eggs in one basket, to make sure your portfolio is properly diversified. And so regardless of the minutiae of the news flow, you should have a robust portfolio.

Black: Dan, thanks so much. Thanks for joining us.