Brexit: What's the Coutts investment view?
Our view on Brexit for investors.
2 min read
Both UK shares and commercial property have rebounded since the EU referendum
The UK is consistently ranked as one of the easiest countries in the world to do business
Its unemployment rate is currently at its lowest level for over 40 years
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Any comment on how markets might react to the various negotiation outcomes can only be pure speculation. But we can look back at what happened in the markets after the EU referendum and other ‘lower probability’ events like President Trump’s election in 2016.
In both cases, stock markets fell but soon recovered – in the case of Trump’s election it happened within the same day.
In the immediate aftermath of the EU referendum, three areas were hit – sterling, UK domestic stocks and commercial property. Of those, UK shares and commercial property have completely rebounded, while sterling remains depressed. Commercial property, which we have exposure to in our portfolios, is currently performing well. So far this year, we are seeing returns from our UK commercial property funds of around 4%.
If history does prove to be any guide, and if markets reacted similarly following a no deal scenario, then we might expect to see sterling weaken further which could boost the FTSE 100 and be good for sterling-based investors. The currency’s weakness benefits our portfolios as a large part of our UK exposure comes from the FTSE 100 – about 75% of which gets its revenues from overseas. This means those revenues are worth more when translated back into cheap sterling.
On the other hand, if the negotiations result in a ‘good deal’, we could see UK assets perform better and sterling strengthen – which wouldn’t surprise us as we think the currency is currently undervalued and have been increasing sterling in portfolios.
A good time to invest?
There’s no doubt that the uncertainty caused by Brexit is casting a shadow over UK markets and capital investments in the country. We simply don’t have visibility of how the negotiations will play out. That said, we believe that a good investment approach in the private client space is not about trying to time the market and wait for the perfect moment, but more about spending time in the market.
Despite Brexit-related uncertainty, there is still plenty to like about the UK. It is consistently ranked by the World Bank as one of the easiest countries in the world to do business – currently seventh out of 190 countries. This attraction to international companies boosts the economy and is ultimately good for the country’s investment markets. Meanwhile, domestically there are also things for investors to feel positive about, such as the UK’s unemployment rate currently sitting at 4% – its lowest level for over 40 years.
It’s also worth remembering that the UK is just one part of the global picture. Overall, global economic growth remains solid, led by a strong US economy, and we see no imminent signs of a US recession which could herald a downturn.
What happens next?
We’ll continue to keep an eye on the negotiations and reassess our thinking as new information becomes available. We don’t want to speculate, but we will keep you up to date with our thinking.
Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
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