Stock Market Rally and Improving Market Regulation

The free trade deal with the EU has finally been settled. It just needs passing in the UK Parliament and ratification by the EU which is expected to occur without difficulty. Boris Johnson has good reason to celebrate because he has achieved almost all his objectives and got a deal that many thought would be impossible. From the 1st January, when the EU exit “transition period” ends, we will no longer be subject to EU laws.

This is a very satisfactory outcome so far as I am concerned as we will escape the horrible bureaucracy of the EU and once again be a truly independent nation. EU laws will not automatically be translated into UK law. We will maintain alignment on some matters such as labour rights, but we will have the ability to diverge to some extent. And there is an agreement on a new framework for the joint management of fish stocks which was being argued about until the last minute apparently.

For the UK, it gives us potential opportunities such as trade deals with other countries that we could not do as part of the EU. This is truly a historic moment in history and should reinvigorate UK politics. 

All we need now is to get the Covid-19 pandemic under control. To quote Judy Garland from the film “Meet Me in St. Louis” which I watched yet again over Xmas: “Have yourself a merry little Christmas, next year all our troubles will be out of sight…”. Let us hope so.

The AstraZeneca vaccine has been approved by the UK regulator so a massive expansion of vaccinations is now expected to commence. It is hoped this will control the epidemic by the spring. The stock market continues to rise based on the positive Brexit free trade deal, the vaccine news and a massive stimulus to the US economy by the Government sending cheques to everyone. My portfolio is now ahead of where it was at the start of the year which is somewhat surprising after such a turbulent year – more analysis may follow when I have done my full end of year analysis which takes me some time. Some shares were so buoyant of late, particularly investment trusts where discounts have narrowed, that I sold a few shares this morning. (P.S. – only from ISAs where no tax on the gains will be payable. Trading investment trust shares on short term horizons is rarely a good idea).

On the issue of stock market regulation, there was an article in this week’s Investors Chronicle by James Deal, the COO or Primary Bid. That company aims to enable private shareholders to take part in share placings from which they are normally excluded. As such placings are often at substantial discounts to the market share price, private investors miss out. They also get diluted.

The article mentions the £8 million cap on “undocumented” deals (i.e. ones without a prospectus) imposed by the EU’s Prospectus rules. The writer says “Brexit affords policy makers an opportunity to revisit this cap”. That’s one of many EU Directives that have been translated into UK law in the last few years. The Shareholder Rights Directive is another one that has been poorly thought through in terms of applicability to UK investors.

EU Directives are frequently excessively complicated as a result of trying to meet the needs of 27 EU countries all with different financial traditions. Let us hope that Brexit enables the UK to look again at many aspects of stock market regulation and the rights of individual shareholders.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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