With the founder of investment firm Hargreaves Lansdown, Peter Hargreaves willing to guarantee his entire personal fortune of £3.6bn on a ‘no deal’ Brexit (i.e the UK leaves the EU without a deal). Is it time to panic? Or cheer?
Hargreaves believes it will be time to cheer, as ‘no deal’ will give the UK the freedom to trade with Europe’s three biggest economies – France, Italy and Germany.
Bigger institutions like the International Monetary Fund (IMF) are not so hopeful. The IMF has warned that it would cost the UK almost 4% of its GDP if there was a ‘no deal’ Brexit. We ask several investment professionals their opinion on a ‘no deal’ Brexit.
Phil Organ, investment manager and associate director of Yorkshire-based wealth management firm, Leodis Wealth says: “As [the prospect] of a ‘no-deal’ Brexit looms that uncertainty is likely to cause share prices in companies that trade with Europe (and in Europe that trade with the UK) to suffer. As such we need to position client’s portfolios more cautiously now rather than wait to see what happens.
“Trade, both physical, and in services is the most important area for our client’s investments. We take frictionless trade with Europe for granted. That would no longer be the case. Infrastructure (customs, ports, airports, road and rail) is built to handle goods passing straight through.
“Companies handling goods have the logistics in place to deal with this. If goods are held up at point of entry to and from the UK this will be a severe challenge and potentially very costly. For companies operating on high volume and thin margins this could be very bad.
“There would be an increase in consumer prices as tariffs under the rules of the World Trade Organisation became payable. Some if not all of the cost would be passed through the chain to the consumer, not helped by a potential shortage of goods due to the hold-ups in transportation. The consequent inflationary impact could hurt bond markets and in turn share prices. Our job is to try to minimise client’s exposure to those areas most likely to be affected.”
In relation to Leodis’ clients, Organ says: “We invest our client’s portfolios globally and indeed the share prices of UK listed companies with global businesses tend to rise as sterling falls – the translation of their profits back into sterling from overseas is enhanced. So there are ways to mitigate the ‘no deal’ threat.”
Martin Bamford, managing director of Informed Choice, and chartered financial planner says on the whole it is very difficult to predict the outcome of Brexit negotiations from an investment perspective.
Bamford says: “A no-trade deal Brexit could have big short-term implications for the UK economy, but it’s important to remember that an economy and stock markets are not always well correlated.
“In the case of the FTSE 100, the majority of revenues come from overseas activities, making the fall in sterling likely to accompany any ‘no deal’ Brexit a potential boost for investors.
“Where investors are holding well diversified portfolios, with global allocations, and they are taking the long-term view of returns, as they should be, there is little to fear from any short-term volatility. From a more practical perspective, we encourage clients to take a common-sense approach to any potential emergency in the future.”
Sabuhi Gard is an investment writer at Incisive Works
Further reading on this topic: