Brexit: implications for investments
At the time of writing this article, the UK Government is still in negotiations with the European Union over the terms of its planned withdrawal on 29 March 2019.
As we’ve been continually hearing over the past few years in the media, Brexit uncertainty is affecting business and consumer confidence. But right now, the form of what this might look like is unclear, as are the related economic and regulatory implications for investments.
Worst case scenario
A report by the Bank of England has suggested that a worst-case scenario is indeed a no-deal Brexit, which potentially could lead to a shrinking economy, house prices falling, unemployment increasing and inflation rising substantially.
However, that is the worst-case scenario, and there is some comfort in knowing that the actual outcome is likely to be better. There could also be scenarios where there is little or no direct impact. For example, for a UK-domiciled individual investing with a UK-registered company from a UK-based bank account, they may find that Brexit has little immediate effect on their investments, although it will depend on the specific details of the investment.
Political uncertainty and various other factors such as exchange and interest rates can all impact how investments perform. During any period of change, it’s essential to be able to access professional financial advice and feel comfortable that your investments are robust enough to deal with any potential volatility.
Among so much uncertainty surrounding the UK’s imminent departure from the EU, conventional pricing of company shares has also been impacted. It is often said that quality is not about any single metric, but a blend of characteristics that allows companies to deliver growing value for their shareholders over time. A quality company should, amongst other things, be able to provide sustainable growth with a healthy balance sheet and strong corporate governance.
Brexit, for all its unintended consequences, has opened up rare possibilities to buy stakes in quality companies at attractive valuations. By comparing share prices to company earnings, UK stocks overall look less expensive than their counterparts elsewhere in the world. The abandonment of logic in the face of short-term concerns over the UK economy has created opportunities for some long-term investors.
However, it remains too early to fully understand how Brexit may affect the cost of imported goods years from now, as so much depends on trade agreements reached between the UK and the EU (and other countries). If the pound’s weakness persists, the cost of other imported goods may also rise.
Long term view
Despite periodic and unavoidable corrections, stock markets tend to recover over time. Long-term investors need to take a pragmatic view about volatility and the subsequent opportunities, alongside professional financial advice.
No one can predict precisely what will happen in 2019 and beyond, but we can look to history and take some comfort from the knowledge that markets are often resilient over the longer term.
It’s good to talk
The Brexit negotiations to date have been detailed and complex, and at the time of writing there is still uncertainty as to the final outcome and its direct impact on your personal finances. If you would like to discuss any aspect of your financial plans in the light of Brexit, please contact us, where we offer you a full complimentary one-hour consultancy
This gives you the freedom to discuss your dilemmas, financial goals and concerns with one of our regulated life centred financial planners. This could give you the peace of mind you have been looking for.
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