It’s where company revenues come from that really counts
As the post-Brexit dust begins to settle, investors are still weighing up the potential impact of the UK’s vote to leave the European Union on their portfolios in the coming quarters.
Over the last decade, UK growth has been relatively robust compared to a sluggish global recovery, which has helped those UK firms with a significant exposure to the domestic economy. But with the UK facing the possibility of an economic slowdown, investors are now thinking about shifting their sector allocation.
As the chart below shows, some sectors are much more vulnerable to a UK slowdown than others. UK-listed home builders, which source close to 100% of their revenues from the UK, are particularly sensitive. At the other end of the scale, energy and mining firms have much higher international diversification and have very little exposure to the UK. These firms will be more sheltered from a UK slowdown, and their overseas earnings will also be supported by the weaker pound, which has fallen 15% on a trade-weighted basis since August 2015.
With the threat of a recession hitting the UK economy, investors may want to consider pivoting towards those sectors that have more international diversification and can benefit from the weakness in the pound.
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