It’s official: UK private investors see Brexit as “an opportunity”

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James Faulkner

It seems that confidence remains high among the UK’s army of private investors, despite all the doom and gloom that permeates the mainstream media’s narrative on the Brexit situation.

In a survey carried out by Master Investor Limited – an overwhelming 86%* of UK private investors described themselves as “confident” with regard to their current investment confidence levels, with one in six (16%) claiming to be “very confident”. The research also revealed that the majority (51%) view Brexit as an “opportunity” for their investment pot, with just 15% viewing it as a “disaster”. An impressive 85% of respondents were actively looking to invest in the UK in 2019.

This is exactly what I would expect from the seasoned private investors that constitutes the Master Investor audience; experience dictates that uncertainty brings opportunity. And while it is true that the UK stock market has underperformed most of its major peers of late, that underperformance has left UK stocks looking their most undervalued “since the First World War”, according to one fund manager. The best times to invest are often the times when it feels the most uncomfortable, and today’s environment certainly seems to fit the bill.

While there may very well be further volatility to come for UK stocks, the stage appears set for what could be a very dramatic bounce-back once Brexit is resolved. If we leave with a deal, then the best place to be is probably going to be the domestic-oriented companies that constitute the FTSE 250 index. As these companies are generally highly exposed to the UK, they are the most sensitive to the anticipated levels of disruption to the economy post Brexit.

Meanwhile, should the UK leave without a deal, the blue-chip multinationals that make up the FTSE 100 index would be likely to be the most resilient. Many of these companies generate a high proportion of their earnings overseas, and would therefore see the sterling value of their earnings rise should the pound fall on global currency markets.

But it’s not just private investors that are keeping the faith with the UK. It appears that while the EU bureaucrats are talking down Britain’s prospects outside the EU, European-based investors are seizing the opportunity to buy into UK assets and have more than doubled inward investment into Britain in the past three years. According to S&P Capital IQ data, buyers in the EU have acquired 553 UK assets in the past year through mergers, acquisitions and private placements. Purchases of property, company and stakes in fast-growing firms have amounted to $31.1 billion. In 2017 European investment acquired 497 UK assets totalling $21.2 billion, and in 2016, 454 assets totalling $13.6 billion.

Readers may be surprised to know that the value of the UK’s foreign direct investment (FDI) stocks in 2017 was £1,336.5 billion, a rise of £149.2 billion since 2016 – and the highest level of inward investment stock on record – according to figures published by the Office for National Statistics (ONS). Notably, FDI constitutes “fixed capital” such as plant and property that can’t easily be relocated. This suggests that foreign investors are more comfortable with the UK’s future outside of the EU than the media and politicians would have us believe.

And when we dig into those figures, we can uncover some really interesting themes. The greatest growth from any country came from Indian investors, rising 321% to £8 billion. Meanwhile, Japanese investment increased 71% to £78 billion – which suggests that the image we all have of Japanese car manufacturers fleeing these shores in their droves does not paint the whole picture of that country’s attitude towards the UK. But these are both small-fry compared with the amount of investment coming from the US, which increased by 19.5% to £351 billion. Interestingly, the financial services sector – traditionally seen as one of the most exposed sectors in terms of Brexit – attracted more FDI than any other industry, accounting for £385 billion of inward investment into the UK. This is an increase of 19.5% from the previous year.

All this serves to remind us that the headline-grabbing of the doom-and-gloom merchants in the Remainer press is nothing more than a smoke-screen. Investors both at home and abroad can see the long-term opportunities on offer in the UK and they intend to act on them.

* Research conducted online by Master Investor with 175 private investors in February 2019

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