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Brexit breakthrough: what 14 investment professionals think

We share 14 reactions to the Brexit agreement from big names in the worlds of fund and wealth management.

The long wait is over!

Theresa May has finally unveiled the government's proposed deal for the UK's departure from the EU.

The prime minister was never going to please everyone, though, and – somewhat predictably – the agreement she hammered out was met with a wave of government resignations

The uncertainty heaped pressure on the pound, with talk of a possible vote of no confidence in the prime minister from Brexit hardliners.

Here, we share reactions from 14 investment professionals.  

 

 

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The long wait is over!

Theresa May has finally unveiled the government's proposed deal for the UK's departure from the EU.

The prime minister was never going to please everyone, though, and – somewhat predictably – the agreement she hammered out was met with a wave of government resignations

The uncertainty heaped pressure on the pound, with talk of a possible vote of no confidence in the prime minister from Brexit hardliners.

Here, we share reactions from 14 investment professionals.  

 

 

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Karen Ward

Chief market strategist for EMEA, JPMorgan Asset Management

Even if members of the Conservative Party do not ‘like’ the deal, voting against the prime minister raises the risk of political deadlock that can only be resolved through either another Brexit referendum (with the options this deal or stay in EU), or a general election.

That would be a significant risk for backbenchers to take. We think the bill will pass and most likely in the first week of December.

Going in to next year we expect business investment to experience a relief rally and higher sterling to depress inflation and lift real wages so consumer spending would also accelerate.

Given the Bank of England (BoE) believe that the economy is already at capacity we think it will raise interest rates at a faster pace than the market currently expects (we see at least two 25 basis point increases next year). When the BoE confirms this more hawkish playbook we expect sterling to rally further.

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Liz Field

Chief executive, Pimfa 

The proposed draft achieves this by ensuring in its transition arrangements a minimum sensible period for our firms to make necessary changes for operating from the UK as a 3rd country, rather than as an EU member state. 

The possibilities for lengthening transition are also welcome in this context, and overall the prospect offered of a sensibly managed withdrawal from the EU with a one-step change for our firms at the end of transition will minimise disruption to business. 

Given the significance of the UK financial services industry, ensuring stability and maximising the prospects of protecting retail investors are key concerns for the future. Very clearly, further detail is needed to ensure that the UK can continue to operate as one of the leading wealth management and financial advice centres in the world.”

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Richard Buxton

CEO and manager of Merian UK Alpha fund, Merian Global Investors

Clearly this is a major step forward but attention immediately switches to the degree to which the agreement is acceptable to all sides within the House of Commons.

The Westminster rumour mill will be in overdrive, but investors are encouraged to not be over-influenced by every twist and turn in the political drama, which will continue to run for some time.

Even if it is a close thing, my expectation is that Parliament will ultimately endorse an agreement rather than risk a ‘no deal’ exit, with potentially damaging consequences for the UK economy, its citizens and voters.

Sterling remains judge and jury on the country’s future economic prospects, so watch the currency markets for their view on the prospects of a deal being voted through. 

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Dean Turner 

Chief investment officer, UBS Wealth 

The Brexit negotiations are entering the endgame but the final
outcome still remains highly uncertain. The technocrats have, as
expected, hammered a draft text for the Withdrawal Agreement (WA) it is now up to the politicians to finalise the deal.

In our view, the risk to the deal succeeding or failing is now in the
hands of UK MPs. Theresa May's slim parliamentary majority, only
possible with the support of the DUP, may not hold up when the
WA is first shown to MPs. We expect a period of political turbulence
in the coming weeks and the collateral damage to the government
could be sizeable.

However, we still think it is more likely than not that MPs will
eventually ratify the WA as the alternative of a 'no deal' exit will
be a less enticing prospect.

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Edward Smith

Head of asset allocation research, Rathbone Brothers

It looks like much of the nitty-gritty on trade in services, financial services regulation and fishing will be worked out during the transition period.

This fits into our idea that we will have a Brexit deal de minimis in March, with most of the details still to be worked out – a 'never-ending story'.

So even if it passes the Commons, that will likely mean another two years of stagnating business investment. It’s still all to play for. Mr Rees-Mogg and co are saying they will vote the thing down.

But given that it looks like much of the detail will be worked out at a later stage, could some of them be persuaded to vote for it? Especially if the alternative is a second referendum or a general election and the possibility of no Brexit at all? 

The pound is up 1.5c on the dollar, but the exchange rate’s still weaker than it was a month ago, so markets are still very undecided.

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Laith Khalaf

Senior analyst, Hargreaves Lansdown 

The market has taken a big red pen to stocks which are heavily exposed to the UK economy like the banks, retailers and housebuilders. These sectors were already under pressure, but the potential for an orderly Brexit to unravel in the next few days is causing further distress to be manifested in share prices.

The pound has fallen, which is acting as a buoyancy aid for the Footsie index, as it boosts the share prices of the big international firms whose revenue streams largely come from overseas.

However if sustained, a weaker pound spells bad news for a retail sector which is already struggling, as it hikes up the price of imported goods and at the same time squeezes consumer incomes.

We can expect continued volatility in financial markets while political uncertainty swirls around Westminster. However it’s best to keep investment decisions detached from politics, as the EU referendum amply demonstrated. In febrile market conditions investors will be well-served by avoiding knee-jerk reactions, and focusing on the long term prospects for their portfolio

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David Zahn

Head of European fixed income, Franklin Templeton Fixed Income Group

Parliamentary approval of the withdrawal deal wouldn’t necessarily fix all of Mrs May’s problems for good. It would merely kick the can further down the road.

Discontent is likely to show in the next election, whenever that is. So in the longer term we’d expect more uncertainty, but in the shorter term we should have some relief and we think that should be positive for financial markets.

Our expectation would be that a trade deal eventually gets done; however, we recognise there’s a not inconsequential chance of a hard Brexit. 

There are a number of scenarios in which gilt yields in particular could be much higher in six months’ time, or conversely, much lower.

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Jon Greer

Head of retirement policy, Quilter

Esther McVey’s departure after just 10 months in her position is unsettling, particular since she evidences the lack of faith in Theresa May’s leadership. 

Leadership at the DWP has been about as stable as a mobile home in a hurricane as a parade of ministers have picked up the baton only to fling it away.

Setting retirement policy and ensuring we have a well-functioning state pension system is a long-term project which is put at risk if the minister responsible for the DWP changes from one year to the next. 

However, it seems all this will continue to be on the backburner as Brexit sits centre stage at Westminster.

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Helal Miah 

Investment research analyst, the Share Centre 

In my 20 years in the city, I have never seen such polarised movements on a single day between UK and non-UK focussed stocks in the main index. Obviously, uncertainty has increased, but this brings about the possibility of two polar outcomes, either a ‘no-deal’ exit or the possibility of another referendum or general election. 

A no-deal Brexit is bad enough, but a general election and the possibility of Jeremy Corbyn as prime minister could be an even worse-case scenario for many businesses.

This leaves UK investors in a conundrum. The stock market still offers attractive long-term returns, but they will now need to focus even more on what underlying exposures they have. Since the referendum, the international giants have fared rather well and we take the view that this will probably continue.

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Chris Cummings

CEO, Investment Association

This is a significant breakthrough in the Brexit negotiations.

European savers and the industries that serve them can take some comfort from the announcements.

Although there are still important political hurdles to clear in the coming weeks, and firms will continue to keep their contingency plans under review, the details published today will give firms more clarity on the shape of the future relationship between the EU and the UK.

All efforts must now be focused on securing a final agreement that protects the interests of European savers and investors and which allows the asset management industry to flourish.

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Will Hobbs

Head of investment strategy, Barclays Smart Investor

As ever with the mostly unreadable twists and turns, the message for investors is to leave any strong convictions at the door.

Our hunch remains that the potentially dark unknowns of a hard Brexit will incentivize compromise of one sort or another.

If such a compromise is not found, we should be prepared for both the UK economy and its related assets to be subjected to a more hair raising time for a while. Nonetheless, the intrinsic value of the stocks quoted on the UK’s exchanges tends to have little to do with the UK economy.

Sterling traders will feel differently and the currency’s related tribulations would temporarily shape related portfolio returns.

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Ben Seager-Scott

Chief investment strategist, Tilney

As an investor, how am I reacting to the Brexit developments this morning?

By doing absolutely nothing – I see it as little more than noise.

I'm diversified by geography, asset class and style. This doesn't change my long-term outlook.

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Miles Eakers

Chief market analyst, Centtrip

Despite the announcement yesterday hinting at some Brexit progress optimism, today’s resignations just confirm how delicate Brexit remains.

It’s also likely to get worse before it gets better for the resilient Prime Minister Theresa May. Support from her party seems to be crumbling, with further resignations now likely.

More worrying for the pound would be if a vote of no confidence follows. I expect further pain ahead for the UK currency. A vote of no confidence would add to the rising sterling volatility and result in either a second referendum or a no-deal Brexit.

 

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Jeremy Thomson-Cook

Chief economist, WorldFirst

Sterling had priced in some resignations but not that of Dominic Raab, and hence, we are now looking at the additional falls.

All eyes are now on Theresa May, with a challenge to her leadership increasingly being viewed as the next catalyst for another sterling collapse.

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