The uncertainty of when and under what conditions the UK will leave the EU has put investors on a veritable buyers strike since the 2016 referendum. The end of the uncertainty now compensates for the negative Brexit effects, believes Dr. Adolf Rosenstock from MainSky Asset Management.
© MainSky Asset Management
The risk of a no-deal Brexit resulted in a massive underweighting of UK stocks in international portfolios. The investors then felt confirmed at the latest with the outbreak of the corona pandemic, which in the United Kingdom led to a very high incidence and an above-average number of deaths earlier than in many other countries. But now the tide has turned in several respects and British financial assets appear relatively inexpensive and with good performance potential.
What are the advantages of “Buy British”?
The agreement between the UK and the European Union, negotiated at the very last second, regulates mutual market access for goods. Now there are again customs barriers and countless non-tariff import restrictions. Nothing has yet been agreed on services that are just as important. There may be new bilateral agreements that will regulate financial services in particular. Overall, this is likely to weaken the British economy more than that of the EU.
The uncertainty is out
Despite all the negative consequences, the fact that with the Brexit deal the years of uncertainty about how and when to exit the market has disappeared and that it is now in the hands of Great Britain is likely to be much more decisive for the future of the British financial market, under what conditions it wants to trade with countries outside the EU. In the long term, Brexit could lead to stronger relationships with global trading partners such as China, India or the USA.
Better vaccination management
In addition, the British government has managed the corona crisis better than the EU since vaccines were approved. Not only did she negotiate legally better contracts with the pharmaceutical companies, she also ordered more vaccine doses per capita early on. So far, just under a quarter of the UK population has been vaccinated at least once, while the EU has not even reached five percent. Great Britain should therefore achieve herd immunity status much faster and thus return to a more or less normal economic, social and cultural life than many other countries.
Favorable stock valuation
“This is one of the reasons why we assume that Great Britain will experience a strong cyclical upswing in the coming months – and thus important months earlier than the European Union. It is therefore not surprising that not only the course of the Pfunds has recovered, but that the British stock market has also ended its long phase of underperformance for the time being. The London Stock Exchange is also benefiting from the listings of prominent energy and mining companies, “says Dr. Adolf Rosenstock from MainSky Asset Management. Despite this recent recovery, the UK stock market is still moderately valued. With a forward PE of currently 13.5, it is relatively cheap compared to Germany with 15.7 or the USA with 22.4.
British bonds in demand again
In addition, with the rising external value of the pound and rising yields, the British bond market is now back in the sights of investors, so Rosenstock continues. “All in all, Brexit was and is a clear cut in trade relations between Great Britain and the EU, which also will remain an integral part of future investment decisions. For future market trends, however, it is initially more important that the outcome of the negotiations had been expected to be even worse until the end of last year and that the new mode now creates clarity where there was great uncertainty before prevailed. ” (kb)