The UK is the world’s least-loved major market – but it’s not all Brexit’s fault, affirms a leading analyst at one of the world’s largest independent financial organisations.
Tom Elliott, International Investment Strategist at deVere Group, comments ahead of a crucial Brexit summit on Friday, the 6th of July, at Chequers, the Prime Minister’s country retreat. At the crunch meeting, the cabinet will thrash out Britain’s favoured economic relationship with the EU.
Mr Elliott comments:
“The UK is the world’s least-loved major market – but it’s not all Brexit’s fault.
“According to the much-quoted Bank of America Merrill Lynch monthly global survey of fund managers, the U.K is at the bottom of global investors’ list of favoured developed stock markets. And The Times last month quoted a report from The Investment Association that since the Brexit vote two years ago, £7.9bn has been removed from UK equity funds.
“The cause is probably Brexit, which has contributed to a fall in investment and consumer confidence, leading to disappointingly weak underlying economic growth.
“The UK economy grew at a rate of 1.2 per cent in the first quarter, year-on-year, compared to 2.5 per cent in the euro area and 2.8 per cent in the U.S. Investors follow growth, because that is where stronger corporate earnings will be found which, in turn, will help support share prices.”
He continues: “However, another explanation might be that UK blue chip stocks are simply unfashionable. The UK stock market is dominated by ‘old economy’ value stocks, such as energy, consumer staples, utilities, banks and insurers.
“The fall in sterling immediately after the Brexit vote helped boost the blue chip FSTE 100 index, since 70 per cent of FTSE 100 corporate earnings are in foreign currency. But that was a one-off move in the currency. In contrast, value, as an investment theme, has been out of fashion for some years. Instead investors prefer ‘new economy’ growth stocks, in particular the technology sector – which is barely represented in the FTSE100, while comprising 25 per cent of the S&P500.”
Mr Elliott adds: “Until we have a clear signal from the UK government what sort of Brexit it wants (‘hard’ or ‘soft’), forecasts for the UK economy and financial markets -including the value of sterling- are highly speculative. This, together with the momentum currently being had from growth stocks, justifies a move by UK investors away from their home market and into a truly global, diversified portfolio. In addition, keep 5 per cent in cash to take advantage of any market sell-off – a sound investment tip, irrespective of Brexit.”
deVere’s International Investment strategist concludes: “If a soft Brexit appears likely, re-investment in the UK stock market would make sense, with a bias towards small and mid-cap stocks that are more sensitive to improving domestic economic growth prospects than FTSE 100 blue chips.
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
“However, a hard Brexit will lead to a further deterioration in the outlook for the UK economy and weakness for small and mid-cap stocks. A further fall in sterling will accompany a hard Brexit, flattering many FTSE 100 companies’ shares to rise due to the currency translation effect on their foreign earnings.”
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Hernaldo Turrillo is a writer and author specialised in innovation, AI, DLT, SMEs, trading, investing and new trends in technology and business. He has been working for ztudium group since 2017. He is the editor of openbusinesscouncil.org, tradersdna.com, hedgethink.com, and writes regularly for intelligenthq.com, socialmediacouncil.eu. Hernaldo was born in Spain and finally settled in London, United Kingdom, after a few years of personal growth. Hernaldo finished his Journalism bachelor degree in the University of Seville, Spain, and began working as reporter in the newspaper, Europa Sur, writing about Politics and Society. He also worked as community manager and marketing advisor in Los Barrios, Spain. Innovation, technology, politics and economy are his main interests, with special focus on new trends and ethical projects. He enjoys finding himself getting lost in words, explaining what he understands from the world and helping others. Besides a journalist, he is also a thinker and proactive in digital transformation strategies. Knowledge and ideas have no limits.