MARKET THEMES23/05/2022

Post Brexit investment opportunities and threats

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Post Brexit investment opportunities and threatsPost Brexit investment opportunities and threatsPost Brexit investment opportunities and threats

How might investors benefit from UK's departure from the EU and what should they beware of? Discover more on Fineco Newsroom.

IN A FEW WORDS

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4 min reading

One year on from Brexit: weighing up the advantages and disadvantages

In the year since the UK’s trade deal with the EU was agreed little appears to have progressed. Sticking points remain and, while the UK has new trade deals, few are bespoke. Here we look at threats, opportunities and the investment impact of Brexit. On Christmas Eve 2020 Prime Minister Boris Johnson heralded the trade deal with the EU as a “good deal for the whole of Europe”, but it hasn’t quite worked out that way. What can investors conclude about the advantages and disadvantages of Brexit

The UK economic outlook appears steady, but with some worrying signs

The UK has made progress with trade deals beyond the EU, but few are bespoke

There can be little doubt that Brexit has irritated many of the UK’s allies

The US President is said to be concerned over the threat to the Good Friday Agreement, while there have been disagreements with the French over fishing rights and migrant controls and the Irish are exasperated that Brexit threatens to revive ‘the troubles’. These problems may bed down over time but have accelerated rather than dissipated over the past 12 months.

There are also domestic difficulties to be resolved. Covid-19 has relieved pressure around potential Scottish independence, but this may revive once the pandemic fades. Scotland voted decisively to remain in the EU, and the UK government risks a majority vote in favour of independence in a second referendum, particularly if it offered a path back. A year after the Brexit deal, this threat remains.

The Brexit investment impact is not yet clear

It has been a better time for the UK stock market, though it is difficult to separate the effect of Brexit from the make-up of the UK market, with its high weighting in ‘old economy’ areas such as oil and gas, mining and financials, which have performed better as the global economy has recovered. The FTSE 100 was up 14% over the 12 months to the end of December 2021.

This is still significantly behind the S&P 500, which rose 27% over the same period, but does represent an improvement on its recent performance. It remains at a discount to other developed markets, which suggests some Brexit discount is still in place. However the market develops, there will be investment opportunities.

There has been an improvement in the currency with the GDP/EUR exchange rate moving from 1.11 at the start of the year to 1.20 in December. The rate versus the USD has remained steady at around 1.35.

The jury is still out on the specific advantages and disadvantages of Brexit. The brave new era heralded at the time of the trade deal has yet to materialise. However, the UK’s relationship with the EU took many years to build and may take many years to remake.

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