Hard Brexit? This time it’s different for UAE investors
INVESTORS FACED WITH DOUBLE WHAMMY DUE TO PLUNGING POUND, FALLING ASSET VALUES
This time it’s different for UAE investors investing money in UK properties, shares or gilts compared to a similar fall in sterling that happened in 2008.
At the end of other financial crises, bargain buyers emerged as London was still the global financial centre, but questions are being raised as to whether their assets still hold that attractive proposition.
In 2008-09, the pound fell to a low of 1.35 against the dollar in January 2009 from 2.03 in March 31, 2008, a decline of 33 per cent in 10 months.
Amid the deliberations on Brexit, the currency fell from 1.50 in June 2016 to 1.1450 in October 2016, a loss of a quarter of its value in four months.
“In 2008, while the pound declined and UK property prices fell, the bargain hunters came in as London was still the global financial centre, but if a hard Brexit happens, this time around property prices may not recover quickly as London may be not be a preferred global financial powerhouse,” Phaneendar Bhavaraju, managing partner and head of Global Market Strategy at Arrow Capital, a wealth advisory firm for ultra high net worth individuals and family offices.
UK Prime Minister Theresa May is trying hard to find support for her Brexit draft negotiations on labour movement, customs among others, which analysts fear could lead to the resignation of the prime minister amid calls for fresh elections.
“A disorderly Brexit will result in initial chaos that will be detrimental to pound denominated assets and that could be significant. For international investors who are invested in the UK assets the last two years have been extremely disappointing,” Rohit Nanani, Founder and Director at Arrow Capital said.
It’s a mixed bag for investors in UK equities, which has lagged in performance compared to its European peers.
“In equity markets, corporates with large exposure to the domestic economy will be hit the most in the case of no-deal Brexit. We have seen such a reaction in real estate developers, retailers and banks,” Hussain Sayed, FXTM’s Chief Market Strategist said.
Commodity hedge
“However, UK mining, commodity and health care stocks with good dividend payouts may play as a hedge given that most of their revenues come from outside of the UK, relatively cheaper in terms of valuation, and also benefits from a weaker currency.”
The FTSE 100 index has shed more than 8 per cent of its value since the start of the year. Investors would have gained more than 5 per cent if they invested in the Dow Jones Industrial Average.
Investors are also advised to stay away from any opportunities that may exist in the bond space.
“Fixed income for UK Corporates exposed to domestic economy are also at risk of further declines, and suggest to stay away, especially from short term maturity bonds,” Sayed said.