Brexit negotiations

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Friday, March 23, 2018

Brexit negotiations

Peter Stanyer writes:

'Brexit is at the forefront of the news among concerns over threats to wealth'

Peter Stanyer is co-author with Professor Stephen Satchell of The Economist Guide to Investment Strategy, 4th edition, Profile Books, 2018.  Peter is an independent economic consultant to the Financial Planning Corporation LLP.  The views expressed are his own personal views, and do not constitute advice to buy, sell or hold any investment.

Everyone will have their own views on the merits of the referendum result, but UK investors felt its first impact immediately after the shock result through sterling devaluation (since offset by a weak dollar).  This boosted the sterling value of foreign investments markedly, benefitting investors with globally-diversified investment portfolios.

In this topsy-turvy world, a successful outcome for the Brexit negotiations would be expected to benefit sterling but to hurt short-term performance for UK investors, whereas failure in the negotiations might lead to renewed sterling weakness and so benefit short-term investment performance.

Markets like to surprise and a safer prediction might be to expect increased volatility of sterling as the negotiations move toward a conclusion.

As the UK leaves the EU, major changes in regulation for different sectors of the economy appear inevitable and will result in differential impacts over time.  Even today, nearly two years after the referendum, the risks of Brexit seem clearer than the potential gains.  The consensus remains that the UK may be poorer than it would have been in ten years’ time as a result of leaving the EU, but this is not inevitable.

The message for globally-diversified UK investors is that the impact will be noisy, but that there are few obvious changes in overall strategy called for.