Two so-called black swan events could be on the cards, and the fallout could take a toll on your favourite stocks. Today, we’ll take a look at this pair of potential disruptors as well as one popular TSX stock that might have what it takes to weather a turbulent global economy.
A no-deal Brexit
The British press recently reported on a set of fairly comprehensive preparatory steps to address post-Brexit chaos, known as Operation Yellowhammer. What’s captured the public’s imagination about the reports, however, isn’t the country’s state of preparedness, but the picture painted of near-societal collapse.
From food and fuel shortages to a lack of medication and issues with accessing financial services, the impact on the British economy could be vast.
While there’s some speculation that the U.K. may already be in a recession, a messy divorce from the E.U. could very well tip the country into a full-blown downturn. This could compound economic woes elsewhere in the bloc, such as Germany, which is itself flirting with recession. The knock-on effect would also be felt in North America and would wipe a fortune off the markets if it coincided with, or even help to cause, an economic slowdown in the U.S.
A trade war that lasts through 2020
Could the never-ending trade war with China bring American national growth to a halt? While weak data has shown that areas of the U.S. economy are already technically in a recession, a full-blown downturn could be just around the corner. Indeed, just as the U.K. could already be in a recession and we just don’t know it yet, the broader American economy may already have shifted unseen into reverse.
Should the slow-burning Sino-American trade war last throughout the Trump presidency into late 2020, the effect on the U.S. could be severe. The risk that the trade war could mutate into a cold war, or something even more dangerous, is also a possibility, and one that would have an even harsher impact on the global economy. Indeed, the risk from geopolitical tension appears to be increasing from a number of quarters.
How to stay invested and stay safe
The smart money might be on a stock like Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP). The company is still growing, pays a rich dividend yield and is categorically recession-proof. Renewable energy continues to be a highly defensive growth sector that will continue to reward shareholders, though some patience may have to be exercised, as the trend towards alternative power matures.
A 5.63% yield is relatively safe and is covered by long-term contracts, a healthy balance sheet, and a dominant market share in a key growth sector. There are few stocks on the TSX that are as desirable as this one ahead of a downturn, and it belongs on every income investor’s wish list.
The bottom line
While the likelihood of a sharp downturn seemingly increases daily, there are definitely areas of the TSX that should continue to thrive even in potentially adverse conditions.
Only time will tell whether the trade war will rumble to an end before the next U.S. election, or whether Brexit will have a deleterious effect on the global economy. However, stocks like Brookfield should remain relatively safe even in a worst-case scenario.
