A Royal Union Comes Together As Another Union Breaks Apart

As Britain’s painfully complex break from the European Union (EU)—commonly referred to “Brexit”—continues to be worked out, a royal union is coming together over the weekend as Prince Harry and Meghan Markle will wed on Saturday, May 19, 2018 at Windsor Castle in England. The couple’s decision to wed on a Saturday goes against tradition, as royal weddings usually take place on a weekday. Around 600 guests are expected to attend, a small crowd in comparison to the Duke and Duchess of Cambridge (William & Kate), who wed in front of 1,900 guests. The price tag including security is reportedly around $30 million, $29.9 million and change more than the cost of a typical wedding.

In other British union news—though it may not be getting quite as much media coverage—Brexit negotiations are ongoing as Britain works to separate itself from the EU. Talks have proven to be quite contentious (let’s hope Prince Harry and Ms. Markle’s union is more blissful), with reports swirling in the media that perhaps British Prime Minister Theresa May will ask for an extension beyond 2020 to define the terms of a post-Brexit United Kingdom. Big issues include: disruption to company supply chains (similar to the auto sector and NAFTA talks in the U.S.), the Ireland border, the fact that the EU has rejected a piecemeal approach, and the presence of the euro-skeptics who want a hard, clean break with no concessions. We know the EU does not want this process to be easy and is trying to set an unpleasant precedent for other countries to follow (dare we say, Quitaly?, one term for a possible Italian exit). All of this has created tensions that cloud the economic outlook in Britain.

What does this mean for investors in the U.K. stock market? British stocks have done well the past couple of months, helped some by a weaker British pound (helps exporters). But they have underperformed the U.S. for virtually all of the past decade. Gross domestic product in the U.K. is only expected to grow 1.4% in 2018 (Bloomberg consensus), below last year’s 1.8% growth rate and slower than the United States. U.K. equities are not particularly attractively valued. And earnings growth is expected to significantly lag the U.S. this year, even excluding the boost from the U.S. tax law.

So while many of us will be glued to our TVs to watch the royal wedding this weekend, we do not consider British equities particularly attractive at this point in time, and we continue to favor the U.S. and emerging markets for equity allocations in our portfolios. So cheers to the Royal couple! Here’s hoping for many happy and healthy years together. And as for Brexit, breaking up is hard to do.

Disclaimer: One of the authors of this blog shares an alma mater with Ms. Markle (Northwestern University). As a result, his opinion of the royal wedding may not be completely unbiased.

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

For Public Use — Tracking #1-731933 (Exp. 05/19)