It might all come down to how much Boris Johnson wants to keep the job he has yearned for all his life.
Today, the newly-anointed head of the Conservative Party will enter Downing Street as the leader of a divided country facing a constitutional crisis. The challenge he faces will test even Mr Johnson’s self-belief.
So far, it has suited Britain’s new Prime Minister to play hard-ball with the EU - ‘do or die’ on 31 October. As the moment approaches, and now he has the keys to 10 Downing Street, we will see how firm his resolve is.
On the one hand, the PM’s rhetoric and Europe’s determination not to abandon the Irish border agreement point towards a No Deal exit in just 100 days.
On the other, the parliamentary arithmetic suggests that a mechanism will be found to prevent an economically-damaging Brexit without an agreement.
The only way out of this impasse may be a general election to deliver the PM with a clear No Deal mandate.
But that would be a dramatic gamble even for Mr Johnson. It would force him to risk losing the job he has long craved after a matter of weeks or months. Faced with that prospect, it is entirely possible that a new compromising Boris emerges.
The odds of a No Deal exit are rising but so too is the chance that the can is kicked further down the road. Faced with the choice between embarrassment or leaving Downing Street, it is likely the thick-skinned PM would dig in and seek a further extension.
This is all speculation, of course. For investors, it means just one thing. Continued uncertainty, at least until October and more than likely into next year as well. That is not good news for the owners of UK assets.
As ever, the pound is likely to take the first hit. As it became clear that Mr Johnson was heading into Downing Street, the pound started to weaken. Fundamentally, sterling looks to have dropped far enough. With the US and Europe back on an easing monetary policy path, interest rate differentials suggest the sell-off of the pound has no further to go.
But sentiment could weaken further if the political crisis intensifies. Talk of parity with the dollar may be overdoing it, but it is easy to see the pound falling to $1.15.
The other market in focus will be UK government bonds, or gilts. This week, these were sold to investors at close to an all-time low yield, which implies high demand. It is not clear, however, how long investors’ appetite for government debt will last if Mr Johnson is forced into higher fiscal spending to boost a flagging economy.
Britain might not be able to depend on the ‘kindness of strangers’ as Bank of England boss Mark Carney described the willingness of overseas investors to fund the UK’s deficits.
The property market is already under pressure. Volumes of transactions are well down on a year ago. And price falls in the capital are bound to start rippling out into the rest of the country if Brexit remains unresolved.
Finally, the stock market. Here, the silver lining is the weak pound. The FTSE 100 index is full of exporters and overseas earners. These benefit from a weak exchange rate because it makes foreign profits and dividends worth more on translation.
However, the appetite of overseas investors to take on the risks of investing in the UK has dwindled in recent years. A falling pound makes it even less attractive to hold UK assets. While the high yields on UK shares offer some compensation, they may not be enough to bring nervous investors back in the short term.
For long-term investors, there is clear value in UK shares. But it may be a bumpy ride in the short run.
What does this all mean for UK-based investors? At the risk of sounding like a cracked record, it underscores the value of diversification. The UK represents a relatively small proportion of global stock market value (about 6%) and so it should probably not represent more than about 20% of an investor’s portfolio. Many UK investors might be surprised at how much home bias their portfolios demonstrate.
A balance of assets also makes sense in today’s uncertain environment. While gilts look under pressure, falling interest rates in the US and Europe could underpin the value of other bond markets. And fixed income provides a useful counterweight to the risk of stock markets falling from their currently elevated levels.
The Fidelity Select 50 Balanced Fund offers a mix of bonds and shares and invests all around the world. Alternatively, if you want to choose funds yourself, the latest July edition of the Investment Outlook includes Select 50 fund recommendations for all the key regions and asset classes.
As the new Prime Minister contemplates his limited options, putting your investment eggs in a variety of baskets has never made more sense.
The value of investments and the income from them, can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.