The first half of 2018 has been hugely disappointing for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price. It has dropped by 6p per share since the start of the year, which is roughly 10% of its starting price.
In my view, that is not a major surprise. The company has a business which is focused on the UK, and with progress on Brexit talks being slow, other shares in similar positions have also seen investor sentiment weaken.
In the short run, the trend of the first six months of the year could continue. Although the Cabinet seems to have agreed on a position, it now needs to be agreed with the EU. If not, there is a realistic chance of a ‘no-deal’ scenario. Whether this will be a good or bad thing depends on who you ask, with ‘remainers’ and ‘leavers’ having different standpoints.
One thing that a no-deal scenario could do, though, is increase uncertainty for Lloyds and its UK-focused FTSE 100 peers. This could mean that its 62p share price comes under further pressure in the near term. And even if there is a deal between the EU and the UK, investors may still be uncertain ahead of Brexit. After all, it has never taken place before, so no-one really knows what to expect.
In the long run, I remain optimistic about the prospects for Lloyds and the UK economy. Ultimately, the UK and the EU need each other from an economic standpoint, so growth and confidence is likely to return. And with the bank putting in place what seems to be a sound strategy, it could outperform many of its rivals.
In the near term, volatility could be high, but in the long run the stock could enjoy significant gains on the back of its strategy refresh.