Next’s shares fell by 14% on Wednesday after the retailer issued a less than stellar performance update, with the resulting sell-off exacerbated by a background chorus of gloom over prospects for the British economy this year.
Negotiations on the terms of Britain’s exit from the European Union are set to kick off by March, and there are plenty of other macro worries such as the possibility of further rate hiking by the Federal Reserve and the tapering of ECB QE.
Economists and market commentators have been very forthcoming with bearish words on how Britain will fare economically as Brexit negotiations take place, which is expected to be a two-year period.
Many of these people said similar things shortly before the referendum however in referring to the immediate impact of a ‘leave’ vote, and have so far been confounded by the relatively robust performance of the economy.
A key point of concern is the prospect that inflation will spook consumers into reining in their spending. Where will this inflation come from though?
Not the oil price apparently. According to a research report released today by Moody’s Investors Service the price of a barrel of crude will stay at around $45 in 2017 and $50 in 2018.
The other central worry is that a further fall in the pound will materialise during the Brexit talks. While possible, it seems unlikely. In the days that followed the vote when full panic mode was in play the pound was still much higher than it is now, hitting $1.29 versus $1.22 today.
Then a second dip came in late September, which took the pound to its post-vote low of $1.21 at a time when much of the commentary was still of the ‘sky falling in’ variety.
It is hard to see what details could leak out of the Brexit negotiating room into the media which would be more worrying than what was being said during last summer to push the pound below the recent $1.21 floor.
A good case can be made that a so-called ‘clean’ or ‘hard’ Brexit is priced in, and only a softening of positions on either side could move the value of the pound, with the direction of travel being upwards.
If the prevailing logic is in fact wrong again, and the UK economy continues to chug along at a healthy rate over the next two years then some excellent investment opportunities could be in the offing both at the single stock level and in terms of sector plays.
Next is one example of this. A 14% fall in one day screams buy and hold. Other opportunities will be out there if you do hold the view that the UK economy is well set to surprise on the upside again in 2017 as it did in the second half of 2016.
The sectors that seem most likely to benefit from this scenario are the domestic facing ones naturally, such as retail or hospitality.
