Article 50 triggered
Blake Crawford looks at the uncertainty to come and the potential opportunity for active managers
At this early stage in the process details are limited and it would be wrong to jump to any conclusions. The only thing that we can say with absolute certainty is there will be uncertainty over the next 2 years whilst the UK negotiates the terms of the deal with the EU.While the referendum result takes the EU into uncharted territory, in the short-term nothing has changed, nor will it until two years after the triggering of Article 50.
As investors have been reminded since the Brexit vote, UK equities are not purely a UK investment but a view on global growth, with 70% of revenues sourced overseas. With global growth forecasts showing signs of improvement, UK companies stand to benefit. Sterling weakness, as a result of the vote, has boosted UK earnings and improved the terms of trade for many UK companies supplying goods and services around the world. This is reflected in unexpectedly strong manufacturing data. One consequence of weakening sterling has been increased inbound M&A as global companies look to pick up their UK counterparts at a cheap price, another is that a UK workforce is now relatively cheaper than it was prior to the referendum. UK equities have shown significant resilience so far. The most recent reporting season for UK companies was strong. Estimates were beaten on both earnings and, more importantly, on sales.
The uncertainty that Brexit presents should benefit active managers. Each deal negotiated, along the path to a UK outside of the EU, will either be positive or negative for individual companies and this will be a constantly moving goal post. The government will also, no doubt, do all it can to support British businesses. For investors, selectivity and agility will be key.
For Professional Clients only – not for retail use or distribution. Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material. The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority Registered in England No: 288553. Registered address: 25 Bank St, Canary Wharf, London E14 5JP.