There’s plenty of investor money sitting on the sidelines, but the message from various investment commentators is to ‘keep calm and carry on’.
With less than three weeks until the UK is scheduled to leave the European Union, the second defeat of Theresa May’s deal is likely to further unnerve investors. MPs are now expected to decide on whether the UK should leave without a deal or attempt to extend Article 50.
According to the latest polling by interactive investor, a quarter of investors in March said they were holding off making investment decisions on the back of Brexit fears.
While such hesitancy is understandable, such holding off on investing, according to some commentators, would be a mistake. According to Moira O’Neill, head of personal finance, interactive investor: “Whilst the country may be in a state of political gridlock, it doesn’t mean your personal finances have to be, and nervous investors may want to think about spreading their risk with funds that diversify your investment around the world.”
Similarly, argues Ryan Hughes, head of active portfolios at AJ Bell, makes the point: “Markets are a bit jittery at the moment, but if there is a breakthrough in the Brexit negotiations, things could stabilise, and if you are sitting in cash you could miss out on any improvement in share prices.”
Indeed, according to many measures, Brexit fear has made many UK-listed companies unduly cheap.
According to figures from JPMorgan, the difference in yields on UK 10-year gilts and UK equities is at its highest level since the First World War. With most companies on both the FTSE 100 and FTSE-All Share deriving their earnings from abroad, investors potentially have a cheap way to buy shares whose fortunes are primarily tied to the global economy.
As Lee Wild, head of equity strategy at interactive investor, notes: “Brexit has given investors the opportunity to buy good companies relatively cheaply but, as always, it is vital that investors look to diversify their portfolio to protect against the unknown.”
What is happening to the economy?
According to Pantheon Macroeconomics, amid the focus on the Brexit vote, recent positive economic data has been missed.
January saw the economy grow by 0.5%, the economic consultancy reports. While such growth rates are not spectacular, Pantheon notes that it has reversed December’s drop in growth and should put the UK economy’s quarterly growth rate to exceed Bank of England predictions. Pantheon now deems the risk of a recession to be low.
Provided a ‘no deal’ scenario is avoided, Pantheon expects GDP growth to “continue on its slightly upward trend over the coming months”.
The economics consultancy cites steady real wage growth, excess corporate cash coming off the sidelines and being invested, continued, loose monetary policy, and a forthcoming fiscal stimulus as propelling the economy.