Views on Brexit remain mixed despite election result certainty

Last week’s landslide victory for the Conservative Party in the UK has removed significant uncertainty and put the British markets back on the map for international investors.

Improved investor confidence and a comparatively cheap pound sterling are expected to stimulate more overseas direct investment.

The election result has also eliminated financial market fear of a Labour policy shift that could have resulted in higher corporate taxation, wealth taxes and the nationalisation of utilities and other key infrastructure.

While the initial market reaction to the more certain political landscape has been positive, the trade uncertainty since the 2016 UK referendum to leave the EU remains in place.

Jamie Stuttard, head of Global Macro Fixed Income Team at Robeco

Jamie Stuttard, head of Global Macro Fixed Income Team at Robeco, believes that the UK exit from the EU will only be the beginning of protracted trade deal negotiations that will damage the growth potential of the UK and the EU as a whole.

In a note, he said the “conflicting drivers suggest a near-term bounce but a contained longer-term growth trajectory” until trade issues are resolved.

Low interest rates for the foreseeable future and significant room for the pound sterling to regain value compared to its 2016 levels are counterbalanced by the UK’s budget deficit.

But early signs of an increase in foreign direct investment and mergers and acquisitions, particularly from sources of capital such as Hong Kong, could continue, Stuttard said.

Trust, corporate and fund services provider ZEDRA is briefing clients that, “as a culturally open and highly deregulated society, the UK will be well positioned to create a global niche for business and thus become the Singapore of Europe,” irrespective of its future relationship with the EU.

“From this point of view, it will be the EU who will be the real losers after Brexit,” ZEDRA said in a press release. The company believes the UK might now emerge as a net beneficiary, when it comes to where global financial wealth is held. Still, much will depend on future UK government policy.

Bart Deconinck, deputy global chairman of ZEDRA Group, believes “the impact of Brexit is likely to be felt far beyond the current narrow debate between Great Britain and the EU”.

Bart Deconinck, deputy group chairman, ZEDRA

ZEDRA’s wealthy clients have a direct interest in how the global regulatory and taxation systems are evolving, Deconinck said. “Clients are mobile, as is their wealth, so if they choose to move from one jurisdiction to another, that might be as a result of a wealth preservation or growth strategy, or it may be because of a concern over political stability or a combination of both.”

European plans to introduce new forms of taxation for high net worth individuals to fill the budgetary hole caused by the UK’s departure could become a factor in global wealth flows.

Deconinck said, “The EU will want to continue with its plans, so other revenue sources will be needed to plug the funding gap. We think Europe’s high net worths may well be in the sights of the authorities in Brussels as a result.”

Given the clearer picture on Brexit, Europe’s wealthy families will have to “consider new strategies to preserve wealth, which will almost certainly involve a substantial global relocation of assets”, ZEDRA said.

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