Word on the Street: podcast of the month

The next PM, post-Brexit trade deals and Bitcoin

25 June 2019

From whether or not the next Prime Minister will actually impact the economy to buying Bitcoin, Mike Haslam, from Barclays Investment Solutions, talks to Will Hobbs, Chief Investment Officer, about the latest headline issues.

Word on the Street

Word on the Street is a weekly news and financial markets podcast where leading investment experts discuss events that have been making the headlines. Each month we feature one of the podcasts online, but you can listen to all of the Word on the Street episodes by subscribing below. 

Our experts

Will Hobbs

Chief Investment Officer

Will joined Barclays in 2005 and now leads the team focused on the core aspects of the investment offering. With nearly 20 years’ experience in the financial sector, Will frequently contributes to Bloomberg, CNBC and more.

Follow Will on Linkedin

Mike Haslam

Head of Long Only Distribution

Mike is a specialist in investment funds, with over 20 years’ experience in the asset management industry, and in client-facing wealth management.

Follow Mike on Linkedin

Things to consider

Please note that past performance of investments is not a reliable indicator of their future performance. All investments can fall as well as rise in value and you can lose some or all of your money. Additionally, this podcast is not a personal investment recommendation.

Additional information

If you’d like to know more about the Financial Times Stock Exchange 100 Index (FTSE 100) and world’s sector performance mentioned in the podcast, please see below.

FTSE 100 past performance

FTSE 100 Total return index graph

Data source: FactSet

Annual MSCI World sector performance (USD, %)
  2014 2015 2016 2017 2018
Consumer Discretionary 4.4 5.9 3.6 24.2 -5.1
Consumer Staples 8.0 7.1 2.3 17.8 -9.5
Energy -11.0 -22.2 27.6 5.9 -15.2
Financials 3.7 -2.9 13.2 23.4 -16.5
Health Care 18.7 7.1 -6.3 20.4 3.0
Industrials 1.0 -1.5 13.6 25.9 -14.1
Information Technology 16.6 5.2 12.0 38.7 -2.3
Materials -4.6 -14.9 23.0 29.5 -16.6
Communication Services -1.1 3.4 6.6 6.7 -9.1
Utilities 16.2 -5.8 6.9 14.6 2.9
FTSE 100 (GBP) 0.7 -1.3 19.1 11.9 -8.7

Data source: FactSet

  • Podcast transcript Podcast transcript

    MIKE HASLAM: Welcome to a Word on the Street. My name is Mike Haslam and this is where I get the opportunity to review the week and take a look at the main stories that have been making the headlines and to help me navigate and make sense of this I'm joined by Will Hobbs our Chief Investment Officer. Thanks for joining us today, Will. So let's kick off with the only subject in town: the next British prime minister. How exciting. One simple question to kick it off, Will: does it really matter who becomes the next prime minister?

    WILL HOBBS: Well, Mike, I think you're being a bit deliberately disingenuous that's not a very simple question; it's an extremely complicated one. I think you know there is a strand of thought that argues that we routinely exaggerate the economic importance of changes in political ideology or personnel and perhaps that belief is necessary for us to continue to trudge to the polls with increasing regularity in the UK. But anyway, a close study of the UK's economic history would seem to suggest that politicians here have often been in yoke to the underlying economy and its pre-existing eccentricities and idiosyncrasies rather than the other way around. Now, whatever you believe here, the decision to grant the Bank of England independence back in 1997 can certainly be said to have significantly reduced the economic clout of the UK's government, leaving them probably more or generally leaving them more in charge of how wealth is distributed rather than the actual economic trajectory of the economy.

    MH: But surely now we've Brexit and probably you would hope that it’s at the top of the “to-do list” for the next prime minister. Surely, he or she, their job will be a lot more important?

    WH: Yes, that's certainly the case, Mike. The type of Brexit, if any that we get and we've got to still bear in mind that there could still be no Brexit that seems to be one of the things that people are still thinking about, the type of Brexit that we get is going to have quite a significant bearing on how the economy performs in the short term. Somebody even argued well beyond that. Remember though and I think this is a really important point, translating campaign trail talk into policy is a very hazardous game. Apart from all the kind of parliamentary and civil service checks and balances, all of these candidates for the Conservative leadership have essentially been making a pitch to a minuscule subset of the electorate: about 160,000 Conservative Party members. Now this subset is seen as further to the right and it's significantly more enamoured with Brexit than the Conservative parliamentary party, and indeed probably the wider population. So don't be too surprised if policies look a little bit different once the victor gets his feet under the Number 10 table.

    MH: So while all this goes on and dominates the headlines, don't forget in the shadows we've got Brexit looming. And if you cast your mind back two months ago, European Council President Donald Tusk agreed to give the UK until 31 October an extension to leave the EU. And at the time he said and I quote: “Please don't waste at this time”. Well that was 65 days ago so we are about a third of the way through it already. Will, are we wasting this time?

    WH: That's hard to say, to be honest. If this process delivers a means of finding a parliamentary consensus for exiting the EU with a deal, then no, it probably won't have been wasted time. Ask me that question again in 2025 when you and I will no doubt be scrapping over a chlorinated Franken-chicken bone in the office cafeteria.

    MH: Sounds great. Now we've also had recently another trade deal announced, this time the UK and South Korea. So this is effectively a free trade agreement for the post-Brexit world of the UK. This is a good sign isn't it?

    WH: It's good news, yes. It’s good to be making some progress on this front. South Korea is an important economy in the world. However, I think one of the really interesting things about trade is described by something called gravity theory. This essentially argues that trade is still all about proximity. The weird thing about this is that you would assume that with your massive advances in modern transport and communication technology that distance would become less relevant. The data doesn't point that way and either goods or services, interestingly. Now the point about this is that all the good trade deals we do with other parts of the world will be rendered more or less irrelevant if we operate on significantly less favourable terms with the EU which accounts for about half of our trading activity and will likely to continue to take that sort of chunk for a while yet.

    MH: Obviously the most important factor there. Okay so let's get back to Prime Minister May, just one more one more question on here. So she has lasted in office nearly three years, it was what July 2016. And while she will be known as the Brexit PM, what has happened to the British stock market since then. This is a question that I've been asked over the last few weeks now. I know you said time and again that stock market is not necessarily a barometer of the underlying UK economy. But bear with me on this. Since she came to office in July 2016, the FTSE100 has returned somewhere in the region of 24% total return – pretty good, better than cash. But it has underperformed European equities, it’s underperformed Japanese equities, the UK's underperformed emerging markets, and it’s significantly underperformed the S&P500. So the question to you, Will, is: would the stock market have performed so badly like this anyway with or without May?

    WH: It's interesting. I think the way that I would look at this – and a reminder obviously when we talk about any kind of performance data, we always have to say: past performance doesn't have to be a guidance to what comes in the future. But if you look below the bonnet at how the world's equity sectors have done since, I think it was 13 July 2016 when Prime Minister May took office, the world sectors. it's interesting because it's the technology sector, the IT sector, that sits at the top of the tree with an 84% return and energy sits at the bottom with about 5%. Now if you look at the way the FTSE100 is cut up in sector composition terms, the FTSE has almost no exposure to the tech sector relative to areas like the US or emerging markets, particularly emerging markets Asia, and on the other side it has a lot more energy relative to many other places in the world. So I think probably sector composition over what's been going on in the politics is much more important to consider with regards to that performance.

    MH: I get it. So it’s a very different underlying composition. And then do we like UK equities as a place to invest?

    WH: Not particularly to be honest at the moment. We haven’t for some time but that's nothing really to do with Brexit. That’s more to do with that somewhat more defensive sector composition and also it indexes quite heavily in commodities which we don't really have a very strong view on right now.

    MH: A bit of change of subject, bit of a curveball this: Middle East and oil what's the story, what's going on here?

    WH: We are watching very carefully this story obviously. And now the point here is obviously we don't want war, that's the first point to make. But from an investment perspective and for those watching for the next recession, some will point out that oil prices of which the Middle East is a very important producer obviously have killed economic cycles before. Surges in oil prices have killed economic cycles before. So people do worry about this stuff with regards to the overall global economic context. However, this time is a little bit different. I know those are the foremost dangerous words in investing, but that's really because of that amazing shale oil story in the US. And the point here is that North America, the engine room for the global economy including us in the UK, is simply less vulnerable to oil shocks thanks to its increasingly abundant domestic supply. And that's something just to bear in mind while you're watching these tensions play out.

    MH: Okay so with the volatile markets that we've been seeing of late, looking for something different, should I be buying Bitcoin? I mean this is a serious question, I get asked this. And if you look at Bitcoin, the price of Bitcoin is up somewhere just shy of 150% since its lows back in January.

    WH: It's amazing isn't it. That stat alone actually is quite interesting with regards to how we should think about investing in Bitcoin. So when in the industry we're trying to describe the ride that investing in a particular asset gives, we talk about something called standard deviation, essentially the amounts that a price wobbles beyond its average. So at the ‘Driving Miss Daisy' end, you have government bonds, which offer an annualised standard deviation of monthly returns of less than 3%. Within our traditional asset classes, it is EM equities that offer the relative white-knuckle ride here, with a standard deviation of 17%. Bitcoin gives you 192%. So whatever you think about the intrinsic value of Bitcoin and this is an evolving debate of course, you have to work out whether you can really afford the hair loss that comes with ownership. I certainly can't.

    MH: Well I think I will stick with ‘Driving Miss Daisy'. Will, thank you very much. As always, you seem to put logic behind and you always seem to talk sense and I always seem to be worried about something. You make it all sound so obvious. Thanks again for your time.

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