We wrote a piece before the referendum arguing that the UK portfolio of National Grid, Glaxo, and HSBC, was quite well hedged for either result -Remain or Leave. All 3 stocks have outperformed. What happens next for European financials is pretty simple to describe. Neither we, nor anybody else, knows what is going to happen. To an extent this uncertainty accurately describes all investment decisions – you can’t predict the future. All you can do is to analyse the strengths of each business franchise, assess fair values, and diversify the portfolio so that it isn’t hurt by one single event.

Currently there are some concerns that the “passporting” of financial services between the UK and the EU will cease and there will be a costly requirement to set up fully capitalised entities in each of the two areas. We think that a deal will be reached and “armageddon” avoided. Such a deal would see all financial stocks continue to recover.

What we liked, and still like, about HSBC was that its valuation and strategy make it very resilient to external shocks such as the Brexit vote. The odds of a good outcome are in our favour given the bank’s low valuation; departure from peripheral activities, and global franchise. The bank has already announced it may move staff to its Paris office to cope with any regulatory change and we do not see a funding problem for this bank relative to others. The Asian franchise is strong and it is quite likely that value of a strong franchise in a still fast growing Asian region, without the issues the EU and UK face, will be given a favourable reappraisal by the market.