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Majority of investors not planning to drop UK assets post-Brexit

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The early political rhetoric surrounding Brexit has not persuaded most institutional investors to drop UK investments, according to a survey from State Street.

The firm surveyed 101 of its institutional clients in the immediate aftermath of the UK triggering Article 50 of the EU constitution, which confirmed its intention to leave the bloc.

One fifth (19%) of investors said they planned to reduce their UK holdings in the next six months, up from the 16% recorded at the start of the year. However, the majority – nearly two thirds (64%) – did not envisage changing their UK allocations.

Sentiment was marginally more positive quarter-on-quarter, State Street reported. More than a third (35%) of investors said they were positive about global economic growth on a three to five year view, up from 33% at the start of the year. Just 11% said they had a negative outlook, compared to 19% who were bearish on medium-term prospects in January.

With the UK general election on 8 June having delayed the start of formal exit negotiations with the EU, there is little certainty about the impact of regulatory changes on the financial sector.

However, some businesses are already envisaging operational changes. Almost a third (31%) of the investors surveyed said it was either “moderately likely” or “very likely” that they would reduce their operational or organisational presence in the UK.

A similar proportion (29%) said they did not envisage any changes, while 10% said they were likely to increase their presence.

 Investor plans for UK assets post-Brexit. Source: State Street

Source: State Street

How State Street’s clients envisage changing - or not changing - their UK allocations

The German regulator is to host a workshop for UK asset managers next month to provide information to those firms seeking to establish a presence in Germany, as IPE reported yesterday.

Michael Metcalfe, head of global macro strategy at State Street Global Markets, said there were “tentative signs” of a post-Brexit slowdown – something that was widely predicted before last year’s referendum, but has yet to materialise. Long-term investors remained optimistic, however, Metcalfe said.

This week the UK’s economic growth figure for the first quarter was revised down from 0.3% to 0.2%. Year-on-year growth was also revised down slightly, from 2.1% to 2%.

“The beginning of Brexit would appear to have done little to dent the confidence of long-term investors in the UK,” Metcalfe said. “The question now is whether that will last as actual Brexit takes shape during the negotiation process.”

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