By David Kempton of Citywire

It’s been a turbulent time for the British economy with sterling sliding 16% against the dollar since the Brexit vote, now trading at $1.22, the lowest for 30 years, which should surprise nobody.

For the last year I’ve advocated holding cash in dollars, now up 20% on sterling in that time. HSBC predicts the pound could fall to $1.10, close to its lowest ever, whilst cashing pounds today at the airport will buy less than one euro. That’s a shock to the casual tourist! The UK has become the cheapest of all the world’s major destinations to buy luxury goods; no wonder our leisure industry is booming.

Interest rates in the US are moving up. There could even be an increase in December, especially if Hillary Clinton is elected president, but UK rates, now the lowest since the Bank of England started 300 years ago, should remain unchanged following the pound’s plummet.

Trumpet blown

After the second presidential TV debate it would appear we can discount the terrifying Trump effect as he looks to have blown it. We must hope so or all bets are off: his protectionist policies would hugely upset currency and stock markets.

Despite brave post-Brexit statements, and even some euphoria, there are now worrying signs as the IMF revises downwards its forecast for UK economic growth from 1.8 to 1.1% for 2017 and we hear aggressive noises from Brussels as the hard Brexit date is confirmed.

To be clear ‘hard’ means exit from the EU single market, risking tariffs on food, nearly half of which we import, clothing and cars. Add this to the new low pound and we’ll see inflation and wage increases.

Given the EU accounts for 43% of UK exports while the UK represents only 16% of the EU’s combined exports, I wonder who negotiates from the strongest position? I know we have the rest of a big world keen to trade with us (we hope) but how many years will all those new agreements take to negotiate?

Don’t Ghosn

Some of our major manufacturers are starting to express more concern, especially in the important car industry where Nissan CEO Carlos Ghosn has made it very clear that he would want to see clarification of UK/EU trade arrangements before deciding on their impending investment in Sunderland or Europe. We really don’t want Ghosn to lead the charge out to Europe.

To put this in context, Nissan in Sunderland is a phenomenal success, employing 7,000 workers making 500,000 cars a year, more than the whole Italian car industry. Nissan came here because the UK has a low-wage zone, with a compliant workforce, the most pro-business laws in Europe and a great pool of English speaking engineers.  We must defend all that to keep them here and attract more of their kind.

The smooth entrance of Theresa May into office following Cameron’s resignation was so welcome that there was no real focus on what she stood for, although that is now clearer after the Conservative Party conference.

She seems admirably supportive of people who are ‘just surviving’, a set of the electorate that Cameron appeared oblivious to and which he ignored at his peril. Unfortunately, she looks to be turning away from the City and business with worrying signs of losing interest and contacts.

The back-pedaling on an intention to legislate employers to list all foreign workers is welcome, but such threats will disturb many of our trading partners. At a recent eye operation in Moorfields in London, I had contact with 19 hospital employees at all levels and I don’t think any were UK born. The service, treatment and skills were world class.

Plea from the Powerhouse

And, a cry from the North, please can we have HS3 to connect Manchester and Leeds for a Northern Powerhouse and not squander money on HS2, which seemingly mostly benefits London – again.

On the subject of infrastructure, Cross Rail will be transformational, but please can we have a new runway too?

Whilst the pound has fallen 16% since 23 June, the FTSE 100 is up 18% boosted by the fact that blue chips generate three quarters of their corporate earnings overseas, which are worth more when translated into weaker sterling. It still looks soundly based, with an estimated £150 billion in cash available for investment.

Stock tips

Then there’s Chinese debt and relations with Russia to worry about; all comment for another day, but don’t relax, run the 20% stop loss and try and invest in stocks with reasonable liquidity, where you can exit fast – don’t get stuck, unable to sell.

Only four weeks ago I wrote about the inheritance tax protection available in some AIM stocks, where I said I would compare three portfolios. Of the stocks mentioned in my portfolio then, most have been written up by me in previous Citywire articles. In the table below I show the movements since the original buy recommendations.

Of these 14 stocks, I have suggested buying 11 in previous Citywire articles and will revisit these in the weeks ahead, but would certainly suggest all stocks on this list remain a buy.

David Kempton’s AIM portfolio

Stock Date Price at date (p) Price (10/10/16) Gain / loss
Arria # 31/08/2016 15 17 13%
BCA Marketplace 19/09/2016 190 181 -4%
Burford Capital 25/05/2016 312 446 43%
Cerillion 19/09/2016 127 130 2%
Conviviality # 18/07/2016 199 217 9%
ECO Animal Health 04/05/2016 375 492 31%
EKF Diagnositics Holdings 16/06/2016 12 17 41%
IQE 02/08/2016 24 31 29%
Lok’n Store 22/10/2015 303 369 21%
Morses Club # 02/09/2016 116 126 8%
Serica Energy 24/05/2016 11 15.75 43%
Swallowfield 12/07/2016 191 282 47%
XLMedia 19/09/2016 85 100 17%
Watkin Jones 02/08/2016 112 122 9%

Note: date given is when stock was first mention in my Citywire articles. Stocks marked # I have not previously written about.

David Kempton is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.

This article is independently written by Citywire and not subject to editorial oversight by Blackrock