“People have been taking the slide of the pound as a reflection of Brexit without thinking of what’s going on in the UK economy,” said Fred Jeanmaire, a European equity manager at Columbia Threadneedle, referring to recent slumps in real estate prices and a more general slowdown of the UK economy. Jeanmaire believes Brexit is not likely to happen, since Britons tend to stick with the status quo. “It is a major risk, but in the end the British population is quite conservative. They still have a queen.”
While you may argue that Brexit fears exercise downward pressure on prime central London property prices, Britain leaving the European Union is indeed by no means the base scenario for investors. We polled local fund buyers at the investment forum in Helsinki, Finland, where Jeanmaire made his comments. It turned out that all of the approximately 30 investors gathered there expect Britain to vote to stay in the EU on the 23rd of June.
Rate hike expectations
Polls we held elsewhere in Europe this spring also all gave similar results, albeit they were not all as conclusive. So, if it’s not Brexit, what could be the trigger for the sterling slide? In fact, the currency’s weakness has very much to do with market expectations of a BoE rate hike being pushed forward since the beginning of the year, said Ed Smith, investment strategist at Rathbones, a UK asset manager. This in turn may be related to the possibility of the UK leaving the EU, Smith admitted, but it’s also a response to weaker economic data.
“There has been a slowdown in the economy and frankly that’s been driven by the UK coming out of crisis way earlier than the rest of Europe. The country is just in a slightly different cycle now,” said Jeanmaire. And this is not at all bad news for euro-based investors. “For us it brings quite attractive opportunities, as there are quite a number of very large, global consumer companies listed in London. You can now buy them with a discounted currency and very nice EPS growth,” he said. “Both from a structural and tactical perspective we actually see the UK market as quite attractive.”
Jeanmaire is not the only one who sees opportunities in UK equities at the moment. My colleague Alex Sebastian made the case for the asset class very recently and, perhaps in response to that, NN Investment Partners also upgraded its outlook for UK equities. UK dividend yields and P/E ratios are now attractive on a long-term basis, thanks to the recent depreciation of sterling, the Dutch asset manager argues.
"Brexit is a major risk, but in the end the British population is quite conservative. They still have a queen” - Fred Jeanmaire
Click here to see a full overview of delegate voting results from Expert Investor Finland.
And here you can see a selection of photos taken at the event.