How is Brexit set to affect the investment markets?
With the official date of Brexit set for next March, there’s still a lot that could happen between now and then. It’s difficult to predict exactly what the consequences for the financial markets will be on that date and after. But in the investment markets, uncertainty about what will happen is in itself an event – and we’ve already seen volatility in places such as the foreign exchange markets as a result of the vote to leave.
The issue is compounded even further by the fact that a post-Brexit Britain is great for some industries but not for others – which means it’s hard to read too much into any stock market dip or other problem. This divide also mirrors the divide in the general public: with 58.8% of the wider Stoke area voting to leave and 41.2% voting to remain, it’s clear that there’s no obvious right answer to any of these questions. That said, it’s possible to make some educated guesses, and that’s what this article will endeavour to do.
Investments in companies
Once Britain is out of Europe, it’s likely that the stock market will be the first to face problems. Britain is currently one of Europe’s leading stock market epicentres, and many companies have ambitions of listing on the London Stock Exchange when they go public – or more simply, finding an investor who is based here. For Europe-based company bosses and financial services professionals, accessing the London markets means they need physical access to the country, and the end of free movement may result in barriers when they book their flight over. Over time, this could lead to competitor cities such as Frankfurt managing to surge ahead as an easy-access alternative.
Currencies and interest rates
Again, this is the sort of development that simply can’t be predicted in advance. It’s widely believed that the Bank of England is planning to cautiously raise interest rates over the coming months – but whether or not the raising of rates is a good thing depends on a person’s position in the investment markets. For someone whose exposure is largely to savings products, for example, a rate rise can deliver better returns, but for someone whose investments are tied up in properties that still have outstanding mortgages, rate rises could spell disaster.
In terms of the currency, the main risk for those forex traders who choose to invest in the pound is political instability. Each wave of recent Brexit resignations from the British Cabinet – such as David Davis from the Department of Exiting the EU, for example, and Boris Johnson from the Foreign Office – led to problems of various degrees for the pound, so it’s a real threat. Those who invest in foreign exchange may start to look for safer currencies such as the US dollar. The dollar has indeed begun to see strong performance in recent months, especially given President Trump’s penchant for tariffs.
Sadly, for those who are looking for quick answers, the only thing we can really be certain about in the run-up to Brexit is that more uncertainly is probably on the way. Seeking out professional advice is probably the best approach to take if you want to hedge your bets and find an investment location that is as immune from Brexit’s problems – or, indeed, as exposed to Brexit’s opportunities – as possible. Stefan Masuhr is one such adviser, and he has plenty of years’ worth of experience working at firms across the financial sector. It’s this experience that is vital when choosing an adviser, as it means they can draw on knowledge of previous peaks and troughs and advise accordingly.
Brexit is probably going to be one of the most seismic political and economic events of our times, and the financial markets are certainly set to suffer from, at best, just uncertainty, and at worst, a draining away of talent and cash to competitor locations such as Frankfurt. With everything from the performance of the pound to the ideal level of interest rates all at risk of changing as a result of the government’s negotiating performance, political instability is just around the corner all the time. On the whole, though, it’s worth remembering that one person’s loss is another person’s gain, and it’s likely that the consequences of Brexit will bring rewards to some people and cause others to lose out. In that sense, it’s no different to many of the other economic and political events we experience every single day.