Happier times may be ahead…

Apologies for this Informing You being delayed.  In this case the House of Commons was not the cause but rather my holiday.

It was a necessary recharge of the batteries and I must say what a joy it was to get away from all of the politics and noise that seems to have been consuming our lives more and more over the last three years.  It also gave me the chance to get some perspective on matters, which is difficult when you are bombarded by “news” all day. 

Whilst I was away I believe we got a clue as to what the future may hold for UK investors.  The last three weeks have seen a marked turn around in the Pound and also what had been an unloved part of the market.  As the fear of a no-deal Brexit subsided, the Pound rose by over 5% against the Dollar and the Euro. At the same time the FTSE 250 index, which is dominated by what would be regarded as companies that are “domestic,” rose by over 6%.

In the period since the UK voted to leave the EU in May 2016 (is it only me or does that not seem an eternity ago?) the S&P 500 index in the US has risen by 50% whereas our leading index, the FTSE 100, has only risen by 10%.  Even then this has been mainly from “International” companies that have benefitted from the weakness in the Pound. The main reason for this is International investors have been standing twelve feet away, ten foot barge poles in hand, when it came to companies that relied on the UK (still the world’s fifth largest economy) for their success. 

As proof of how drastic this has been, this week Goldman Sachs said £110bn has been withdrawn from the UK market by investors in global mutual funds since the Brexit vote and this could be the tip of the iceberg as they suspect that many Sovereign Wealth funds are also probably considerably underweight in the UK.

So for the last three and half years, to many investors, the UK has been as popular as Nigel Farage at a Remain convention, but do the last few weeks show this may be about to change?

Now I may be suffering from sunstroke but I suspect this could indeed be the case.  Goldman Sachs themselves say “… the U.K. probably has better prospects for stimulative fiscal policies than many other economies,” and “We think this combination of valuation, carry, and positioning will appeal to many global investors.”

Of course we now have an election to suffer, sorry, look forward to, and no doubt if this does not give a definitive result the uncertainty we have suffered over this period could be prolonged further.  However, if we do get some certainty some of the unloved funds may find themselves in more demand over the next couple of years.

Lastly, whilst away I happened to golf with a retired Senior Executive of Canadian Tire.  I had never heard of them but apparently they are huge and Canada’s answer to Walmart. We started talking about Brexit and he was so positive about the potential the UK had as a result of Brexit it took me aback.  He also felt there was a huge opportunity for Canada and the rest of the Commonwealth to do a trade deal with the UK that would benefit everybody.

Now at this stage we have no idea if he will be right, but I cannot tell how you refreshing it was to hear something positive about our country for a change.  It is just a pity I had to travel 5,000 miles to do so.

Steve Forbes

Alan Steel Asset Management Ltd is authorised and regulated by the Financial Conduct Authority

The Financial Conduct Authority does not regulate tax advice

This letter is the personal view of Steve Forbes.  Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.