UK in weaker position to negotiate trade deals, says Investec
THE view of Investec Private Bank’s chief investment officer in Zurich is that while the Swiss have negotiated trade terms with the EU for the past 60 years, the UK now faces trade negotiations from a weakened position.
The timing of Brexit could not have been worse, said Annelise Peers.
With US economic growth surprising on the downside, European growth rolling over, Chinese stimulus running out of steam, and companies being forced to absorb wage inflation, the last thing the world needed was uncertainty.
“They’re lucky they have a weaker pound when everyone wants a weaker currency, but they will enter a recession, and the shock of what they’ve done will partly negate any export benefits that might come.”
She said the Brexit vote had dealt a heavy blow to European consumer confidence, and increased risk aversion at the wrong time. The benefits of a united Europe, which has ensured peace and freedom of movement for employees and ideas since the end of the Second World War, had actually worked in the UK’s favour.
“The UK and London benefited significantly as a financial services centre. There was a huge brain gain. They’ve also had double the foreign direct investment into the UK compared with what the UK was paying into Europe.”
A UK break-up would further weaken England’s bargaining power as it set about constructing bilateral trade ties, she said. England stands to lose Scottish port access and cheap gas access from the North Sea.
“Ireland will be a big beneficiary, with financial services companies quite possibly shifting their head offices there.” She described the Brexit leave vote as an “anger” vote by the baby boomers.
Without any positive signs for direction in a low-growth world, Peers is wary of the false lure of higher yields in corporate debt — as companies look to use any further quantitative easing to issue debt instead of equity — and prefers to back even negative-yielding sovereign debt from Group of 10 states because they provide liquidity and a rand hedge. Her sovereign debt portfolio is up 10% in 2016.
She also said the assumed wisdom that stock pickers should buy during dips could not be trusted for now. “If there are rallies in 2016, I would take my profits and sit on my hands.”
In SA, Peers thinks it is a good time to swallow the medicine of a world that is retreating from the globalisation trend that enabled China to export its way to wealth. Protectionism is likely to be the trend of the next couple of few decades, and SA needs to restructure and diversify away from commodity exports.
“The advantage SA has is some inflation to oil the wheels. These headwinds simply showed up bad management in the local economy. I think SA is in a better place than it was before.
“It will just take some excellent management and government to put capital in the right areas, restructure the economy, and build the middle class.”