BLOG: Brexit endgame creates opportunities for savvy investors
Brexit has been weighing on the UK since the EU Referendum in 2016. The vote that day has had an impact on the economy and investors alike. Companies, both UK and international, have been withholding investment into the UK. At the same time investors, again both British and foreign, have been drawing money out of the UK.
This is to be expected; companies and investors both don’t like making important decisions on spending money when there are significant unpredictable factors in the way. Companies will delay their investment, for a while at least. Investors on the other hand will look for alternative opportunities which they perceive to be less risky.
The result is slower economic growth and an underperformance of the UK stock market. Given this backdrop the UK economy has held up rather well in the environment of under investment. The UK stock market has lagged behind global markets as investors shun the region and allocate money elsewhere.
However, as we approach the endgame of Brexit there are opportunities being created for savvy and patient investors.
Pound falls, FTSE 100 rises
The FTSE is full of globally diverse businesses which have little to do with the UK economy. These benefit from a weaker pound and as such will provide some defensive elements to a portfolio should we suffer a hard Brexit. We have seen time again in recent years the pound falling and the FTSE 100 rising in response.
Once Brexit has actually happened businesses can begin to make plans and decide how to invest in that environment. Companies which had been withholding investment will begin to put their capital to work which should give a boost the UK economy.
Some of the best investment opportunities are companies which can be best described as self-help. These businesses don’t wait for the economic environment to dictate to them. Instead they will adapt to the new environment and look for new opportunities. While Brexit will result in change, this can be good news for some flexible businesses.
The UK stock market has certainly been held back by Brexit and is generally bottom of many investor’s lists until they can understand what is going on. And who can blame them – it seems that barely anyone knows what will happen at the end of March. However, once the dust has settled investors will come back to the UK. The current lack of interest though has led to valuations of some companies becoming very cheap and this offers a great opportunity for investors. When international investors do decide to come back they may well do so quickly making it hard for individuals to catch up.
Look past the present
Investing is for the long term and this is an important consideration when looking at Brexit and deciding whether or not to invest. No matter what time you live in, the events of those times feel more significant and important than anything that happened in the recent past or is likely to happen in the future. However, the fact is investors almost always over emphasize the importance of present events. If you look at the long term performance chart of the FTSE 100, of the few events that can be recognised (dotcom bubble, global financial crisis), there is one consistent fact. The markets do recover and share prices go higher.
While everyone else is worrying about Brexit, take time to focus on the longer term and look at your own goals.
Adrian Lowcock is head of personal investing at investment platform Willis Owen