Financial markets move when news is unexpected not because it is either good or bad. It is perhaps unsurprising, therefore, that while the drama in Westminster saw shares and the pound weaken there was no sense of panic.
It has been clear for weeks that the Prime Minister stood little chance of gaining parliament’s approval of the withdrawal treaty she has negotiated with the EU. It is not a great shock, therefore, that she chose to duck the vote that would confirm that humiliation.
The one certainty about the ongoing Brexit saga is the absence of certainty. After two and a half years of Brexit we have all become immune to events that in more normal times would have represented minor earthquakes.
So, today’s cancellation has been greeted with a relatively measured response. The FTSE 100 fell by around a third of one percent as the Prime Minister explained her decision. When it slipped a little further towards the end of the trading day, it was in sympathy with a weaker Wall Street. The pound was 1.6% lower against the dollar.
When you consider what is at stake, the market’s reaction may be surprisingly sanguine. But when you accept that markets are very good at pricing in all available information it is not surprising at all.
As things stands we are no closer this afternoon to knowing where the Brexit talks will go next. The Prime Minister has said she will go back to Brussels to negotiate better terms. The EU has made clear there are no better terms available. The only sensible conclusion is that today’s events are simply a deferral of what would have happened anyway rather than a step towards a resolution of the situation.
So, how should we respond as investors to today’s news?
Calmly and cautiously is the simple answer. The lack of clarity over Brexit has been well-priced into the prices of UK assets. The FTSE 100 currently yields 4.5% and many shares within the blue-chip index offer a much higher income than this. UK shares are cheaper than many of their counterparts around the world and cheaper than they have themselves been throughout much of recent history.
For investors willing to take a long-term view, there is a strong argument to be made for investing in the UK, which one way or another will find a way through the current political and constitutional mess.
Looking back to similar periods of crisis, such as the ERM debacle in the early 1990s, stock market uncertainty is barely perceptible in the long-run charts. In time, growth returned and stock market investors who had the courage to invest when all around them others were shunning the UK had cause to be grateful.
The FTSE 250 index of mainly domestically-focused stocks has risen eight-fold over the past 25 years.
This is not to say that there will not be considerable volatility in the prices of UK investments in the shorter term. It is entirely possible that investors will face some dark days in the months ahead. They should not assume that British shares and the pound cannot fall further from here.
But all the evidence of earlier crises suggests that trying to time the market at stressful times like these is fraught with danger. The cost of missing out on even a handful of the strongest days in the market is very significant. And the best days in the market often come hard on the heels of the worst ones.
Investors may not feel they have the confidence to swim against the tide and invest in the UK market today but they should equally think hard before making the opposite call and withdrawing from the market at a time of market turbulence.
Time in the market is a much better investment philosophy than attempting to time the market.
For investors who do consider the UK to be an attractive contrarian investment opportunity, the Select 50 list of our favourite funds includes a range of different investing styles.
The Lindsell Train UK Equity Fund, managed by Nick Train, is a quality-focused portfolio of shares designed to see investors through the ups and downs of the economic and stock market cycle.
A fund which is more directly exposed to the health of the UK economy, and which focuses on buying out of favour and so cheap shares, is the Fidelity Special Situations Fund, managed by Alex Wright.
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. 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.