The risk of a no-deal Brexit came back with a bang earlier this month and investors need to plan ahead to get their portfolio ready.
Prime Minister Boris Johnson imposed a deadline to get a trade deal done with the EU by October 15 despite the two sides seemingly far apart. The effects of political decisions can cause swings in financial markets.
Picking stocks that can weather uncertainty that the new deadline will bring is likely to be difficult, but crucial.
Since the referendum in 2016, shares that rely heavily on the British economy have significantly lagged behind the wider world. A main reasons for this was the pound weakened against other currencies meaning international firms benefitted from a boost to revenues.
Chris Beckett, at wealth manager Quilter Cheviot, said: “We fully expect that the pound would weaken again [in a no-deal scenario] and as companies with strong international earnings stand to benefit."
The key for investors if a deal was not reached would be to buy businesses that generate the majority of their earnings from overseas.
One company is Diageo, the world’s largest alcoholic beverages company. Despite being listed in Britain, its most profitable market is America, accounting for 40pc of sales last year.
It has large market share for whisky (23pc) and gin (5pc) that are predominantly manufactured in Britain and sold globally. A fall in the pound therefore would make goods exported from Britain cheaper to the rest of the world and in theory should increase demand.
Sam Dickens, at stockbroker IG backed the dollar-earner theory. He said: “One stock that has repeatedly shrugged off Brexit concerns is consumer goods giant Reckitt Benckiser.”
The firm behind brands such as Dettol and Nurofen has grown its sales by an average 5.2pc per year over the past decade whilst maintaining a healthy profit margin.
Crucially, just 13.5pc of revenue was generated in Britain last year with the majority from America. A weaker pound-to-dollar exchange rate would see these sales translated back into pounds at a more attractive rate, boosting revenue, he said.
Susannah Streeter of investment shop Hargreaves Lansdown said a weaker pound combined with record-low interest rates and the Bank of England's money printing policy, to stoke inflation. This would require a change in strategy for investors.
Discount retailer B&M European Value Retail is one stock that should benefit from this. The FTSE 100 company is likely to do well in a recession as people on tighter budgets hunt for bargains.
“B&M should be able to profit from its position as a value retailer, given that consumers often trade down from higher end supermarkets when prices are going up,” said Ms Streeter.
It is not all about currency, however. Arlene Ewing, at wealth manager Brewin Dolphin, said the uncertainty a breakdown in negotiations would bring should help credit-checking firm Experian.
“In times of economic instability, lenders look at potential borrowers with even greater scrutiny to make their decisions and, every time they hit the credit-check button, a company like Experian benefits,” she said.
Shares have performed strongly on the back of the company’s resilient performance during the Covid-19 crisis and are up so far this year despite the market falling 16pc.
However, it is more than just a credit-check firm, with recent acquisitions putting it in sectors ranging from telecoms to healthcare.
“Its financial strength, commitment to innovation, and diversity – both from a service and geographical perspective – makes Experian a good call to weather the uncertainty, as it has the Covid-19 crisis,” she said.
Steve Clayton, manager of the HL Select funds, said he has invested in a number of companies that are well insulated from a no-deal Brexit, even though they are more domestic.
Primary Health Properties, for example, is a real estate investment trust that owns doctor’s surgeries in Britain and Ireland.
“With 90pc of the rents paid by the NHS or the Irish health service we see its income as highly secure and a reliable source of dividends for years to come,” he said. According to Hargreaves, the trust has a dividend yield of 3.7pc.