Hard Brexit ‘should spur investors to go global’

UK prime minister Theresa May has confirmed that the UK will leave the single market following last June’s Brexit vote to leave the European Union (EU) and stated: “No deal for Britain is better than a bad deal”.

Her speech came shortly after data showing that the UK consumer price index (CPI) for December rose 1.6% in December from a year ago, the highest figure since July 2014 and higher than the expected figure of 1.4%.

Responding to the news, Nigel Green, founder and chief executive officer (CEO) of independent financial consultancy deVere Group, commented: “After months of keeping her cards close to her chest, in her most important speech since becoming prime minister in July, Mrs May told the world that her plans for Brexit cannot allow the UK to remain in the European single market.

“Although this stance has been widely expected by the markets, it is likely that this confirmation of a hard Brexit will trigger several years of ongoing uncertainty. The markets detest uncertainty. As such, investors should take precautions against a potential fall in the value of UK assets and avoid firms dependent upon UK-only earnings.

“Investors can achieve this by increasing exposure to non-UK investments, such as international stocks, bonds and property.”

He continued: “The stronger-than-expected inflation data also adds weight to the argument to reduce portfolio exposure to UK assets as the Bank of England [BoE] could be more inclined to now hike interest rates.”

“Regardless of the hard Brexit and the increasing likelihood of a rate rise, many investors should be considering a rebalance of their portfolios away from the UK.  Investing across geographical regions is one of the fundamentals of a well-diversified portfolio – and those with a well-diversified portfolio are best-placed to mitigate risk in times of market turbulence and best-placed to take advantage of the opportunities.

“The greater diversification that is secured by ‘going more global’, the greater the reduction of overall portfolio risk.”

Ed Molyneux, CEO and co-founder of accounting software provider FreeAgent, said: “Although the PM’s decision today to add more clarification on the type of Brexit we will see is certainly welcome, it’s also important to note that, up until now, the UK’s freelancers and micro-businesses have felt that they have not been given enough information on the planned exit from the EU.

“We recently polled more than 600 business owners about Brexit and 86% said that they didn’t feel the government has provided enough information on how leaving the EU will impact upon their businesses. Given that freelancers and micro-businesses make up 95% of all UK companies, the economy cannot afford for them to be in the dark.

“In addition, our research found that seven in ten micro-business owners felt that leaving the EU would have a ‘negative impact’ on the UK’s economy – with the majority citing economic and political instability as the biggest reason it will be harder to run their businesses post-Brexit.”

Although the pound rallied from the 32-year low touched earlier this week, David Lamb, head of dealing at FEXCO Corporate Payments, said that sterling was now “more exposed than before”.

“While the PM talked of providing ‘certainty where possible’, she also vowed not to provide a running commentary on Brexit negotiations,” said Lamb

“The information vacuum this creates will put the pound even more at the mercy of rumours and skittishness than before. The result can only be continued volatility. Sterlingwatchers should buckle up – we should expect a bumpy road ahead.”

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