Continental investors hold nuanced views on Brexit. It is fair to say, however, that they generally see its impact as a negative factor for the UK economy, at least in the short term.
This reflects a general consensus among economists that Brexit will hurt the UK economy. That depends, of course, on how far the UK drifts away from the European Union, in terms of access to the single market and other areas of EU-led economic integration.
Long-term predictions are inevitably problematic but it is almost unthinkable that over a period of, say, 10 years, the UK will not have adapted to life outside the EU. This is an important question since most pension funds see themselves as long-term investors. A decade is, to many, a good approximation of what long-term means.
The UK has solid economic foundations that should allow it to survive this tremendous challenge. Its economy has already gone through radical transformations over the past few decades. The labour market is dynamic, the rule of law is strong and the country’s capital, London, remains a place where people from all over the world seek to find their fortune.
That is not to say that Brexit should not matter to investors. First, every investor with a long-term view is entitled to consider short-term matters.
Second, Brexit could be a long and painful economic transition. More importantly, it has already had profound implications for politics in Europe and beyond. These are all factors that cannot be disregarded by even the most objective of investors.
“The UK economy is strong at present, despite the Brexit-related uncertainty“
But if pension funds are true to their commitment to long-term investing, they need to recognise that UK assets could still offer a premium. Caution is advisable but shunning UK assets would be a mistake. The UK is among the more advanced economies on the continent.
While Brexit could slow down UK growth, even in the worst-case scenarios there will be opportunities in various asset classes across the liquidity spectrum. It is likely that current valuations are discounting a hard Brexit or even a no-deal scenario, given the noise coming from Westminster. Yet, ironically, the UK economy is strong at present, despite the Brexit-related uncertainty.
Besides, however one feels about Brexit – I personally am not a fan – it is important to remind ourselves that there are even greater challenges facing the wider European economy. Productivity growth and wage growth are low, while capital investment has only modestly picked up and there are huge disparities between countries.
Investing in Europe has hardly ever been more challenging.
Carlo Svaluto Moreolo,
Senior Staff Writer