The end to UK’s almost 1,000 days of bickering over Brexit seems nowhere close. Currently, Brexit may seem like the overriding problem for the British public. Some support it while others consider it to be a hideous betrayal. As the drama over Brexit almost takes Shakespearean proportions, the mood of the public, irrespective of which side of the fence you are, is increasingly turning cynical.
“Broken”, “sad”, “worried”, “angry”, “exhausted”, “distrustful”, “afraid”, – the negatives tumble out effortlessly, as does the long list of grievances. “In the last two years, there have been so many political problems that it’s an embarrassment to be a UK citizen”, said one respondent in a survey, explaining why 73% think that our once-proud nation is currently “seen as a laughing stock by the rest of the world”.
A second Brexit referendum, soft Brexit, or hard Brexit or No Brexit — nobody is certain what lies ahead and that leaves the UK market and the British pound in a fragile state. The path going forward remains unclear and this is making the investors jittery.
Investors have pulled a full £0.78 trillion) out of UK equity funds since the Brexit vote in June 2016, and UK markets have generally lagged behind the rest of the world as a result. Though in all honesty, investors cannot be blamed for their nervousness and skepticism. It is irrational to expect someone to behave differently if they are continuously bombarded with headlines like “the UK equity market is close to un-investable”, or that “the consensus among investors is that the UK is un-investable at this point because it is not amenable to rational economic analysis”.
However, amid all the talk of doom and gloom, we should pause for a moment and consider the economic fallout of Brexit. The political drama surrounding Brexit may turn out to have been significant. So far, the economic fallout simply hasn’t. Look at UK GDP growth rates — 1.5 per cent a year isn’t bad.
UK assets have been “largely unmoved” by the shenanigans of the politicians. Also, when an asset class is detested, that’s perhaps the most opportune time to start taking an interest in it. Agreed, the situation might have been better without the investment-delaying uncertainty surrounding Brexit. But accurately judging its effect could be a bit tedious as well as tough given the fact that the economic performance of the rest of the EU is nothing much to write home about.
Given that the Brexit (so far) has not led to the economic disaster the prophets of doom were predicting, the million dollar question to investors is what they should do. The world is not all milk and honey for investors; Germany and China are slowing, the US Fed is tightening monetary policy and most valuations feel far too high. Experts believe this is the best time to cast a second glance at the possibly mispriced UK opportunities.
Swimming against the tide?
Mo Rassolli of London-based TrendScout says that the exaggeration of the economic chaos that Brexit is expected to unleash and its effect far into the future are driving away nervous investors from the market. If you don’t mind swimming against the tide and accept short-term pain in order to have the last laugh in the long run, he says, now is the “time to be adding money, not taking it away.
Whatever happens on the national stage, British character will win out. British people will just get on with things regardless of the impact of Brexit.” Amid all the many black and white analyses, countless flowcharts, febrile drama, trepidation and fear, investors should understand that there are too many variables at play. Brexit has laid a fertile ground for misunderstandings and mispricing, and this has negatively affected market sentiments, but it would be wrong to consider it the end of the world.
We might get a no-deal Brexit. This would definitely lead to short-term panic and pain. The pound sterling and the stock market would definitely fall. But eventually they’d bounce, because the entire country would not fall off the edge of the world. Investing anywhere in the world comes with its own share of risks, but if you can cope with hanging on for the long run, it is perhaps the best time to augment your exposure to the UK markets.