Investing After Brexit
There’s no denying that the world markets have been shocked by the Brexit vote. Brexit may not take full effect until another two years but one thing’s for sure: the likelihood is the UK will not be able to trade freely with EU markets by then. The Brexit vote left UK investors, and GBP traders around the world, uncertain about their investments.
After Brexit, The Guardian stated that The Bank of England cut growth forecasts in the UK. GDP forecast for 2017 was down 0.25%, which is a staggering decline from the original 2.3% growth forecast in the May 2016 report.
Both U.K. voters and lawmakers have voiced their concerns and frustrations with the UK’s current situation, and many are questioning whether it will be a soft or hard Brexit. FXCM states that a soft Brexit would imply “a continuation of some trade, immigration, and close cultural linkages with continental Europe,” while a hard Brexit would mean “complete separation from the EU and a return to an arrangement that existed before Britain’s entrance into the organization.”
However despite the cut in growth forecasts, the recovery of the UK’s economy was slightly stronger than expected at the start of 2017. There’s also less fear than there was for the UK’s economy right after Brexit due to Trump’s presidency, whose actions often affect the strength of the USD.
Right now, investors should have unassuming expectations for developed market equity returns, and explore different asset investments to diversify and increase their risk-adjusted returns.
In the short term, the world can presume Brexit-related uncertainty to slash at least 1% from the UK’s economic growth in 2018, while the GBP’s decline should effectively add about 2% points to inflation. The Eurozone is likely to be negatively affected given the fact that it can still freely trade with other EU nations, as well as the rest of the world.
Where to invest your assets after Brexit
With a lot of uncertainty in the equity markets this year, it’s no surprise that investors suggest focusing attention on the best national equity markets that are currently in places with very different stages of their economic cycle. The U.S. and Russia both gained from a perceived bottoming-out of their currencies, and because of extremely attractive valuations.
Japan and the Eurozone were two of the best-performing equity markets in 2015. However in 2016, it was a different story, with Japan being disadvantaged by the stronger Yen and sentiment that Japanese Prime Minister Shinzo Abe’s economic policies were not as sound as Japan’s investors thought they would be.
Experts advise that when looking at European equities, it definitely pays to look past the headline numbers, which are impacted by the losses of energy companies two years ago, and more recently, the decline in the global financial sector that accounts for 25 percent of the index value. Financials are down by 25% year to date, having taken another setback due to the Brexit vote. As such, it is really difficult for the index as a whole to recoup what it has lost at the beginning of 2017.