Brexit: Uncertainty is the Watchword, but Investment Opportunities Still Exist!

The Brexit leave date has come and gone and the future of the UK relationship with the EU is plagued with uncertainty, which looks set to continue—but with a new deadline of Oct 31 2019.

MORE OF THE SAME – WHAT TO SAY TO BUSINESS LEADERS? 

The UK Prime Minister’s resignation only serves to confirm the now familiar message to business, i.e. that they must continue to plan for uncertainty:

• In the near term, consider exposure to possible disruptions in movement of goods/services for both suppliers and customers, model scenarios of price changes (whether through logistical costs, tariffs and taxes or exchange rate movements) and consider if changes in mobility of people might impact the workforce or customer base.
• Thereafter, think about scenarios for the possible opening up and closing down of opportunities in various markets, how the competitive landscape might alter and, perhaps in addition to planning for the downside, consider what upsides might present themselves.

UPSIDES? WHAT UPSIDES?! 

So what upsides can there be to any of this? Well, there are a few unusual pockets of investment opportunity that remain and flourish! There are also some that could benefit from some forms of Brexit.

Prime Property – Only a no-deal Brexit, the default position if nothing can be agreed, will endanger the UK property market, particularly in London and the major cities. The Heathrow expansion, HS2 and the completion of Cross Rail all provide reasons for optimism for carefully selected property investment. Some property prices are presently settling as the machinations of the Brexit negotiations continue. However, strong rental demand in certain prime areas is likely to remain high, so value for money could be had, especially if buying in foreign currency if sterling falls.

Advertising and Creative Industries – The UK remains a key world hub for some industries. The IPA (Institute of Practitioners in Advertising) Bellwether Report for q1 2019 stated the balance of advertisers reporting increased marketing budgets grew to +8.7% compared with +0.0% in Q4 2018. Significant growth was reported across all categories aside from market research, sales promotions and direct marketing. There’s reason here for optimism about investment opportunities in the sector, but also for the UK economy at large.

UK Equities – A weaker pound means companies that are major exporters enjoy a relative advantage because its products become cheaper overseas; many of the FSTE 100 and 250 fit this bill. There’s also a profit boost when this money is repatriated. This is why the stocks that have tended to be strongest this past year have been big exporters, leaving many domestic UK stocks looking quite undervalued.

The UK Tech Sector – European investment in the British tech industry surged last year as the sector shrugged off Brexit uncertainty. Cash injected from Europe jumped to a record high of £1.89 billion in 2018, up from £1.66 billion in 2017 according to new data from law firm Penningtons Manches. The EU remains confident in the long-term prospects of the sector in the UK, the firm said, as the value of deals involving at least one EU investor rose to £1.53 billion, from £1.26 billion in 2017. This is driving the city’s digital infrastructure and preparedness for a connected future.

Your international tax CPAs can help you make sense of these opportunities. So whether you’re considering investments like these or already have them, contact James Moore today!

THE BACKGROUND FACTS… AND AN UPDATE!

In a referendum in the UK held on June 23, 2016, a 3.7% majority of citizens voted for the United Kingdom to leave the European Union. Following a vote in the UK House of Commons (Parliament) on March 29, 2017, the Prime Minister of the United Kingdom wrote to the European Council President Donald Tusk formally triggering the process to leave the EU. The letter invoked Article 50 of the Lisbon Treaty and began the two-year countdown to Brexit. The deadline for leaving was set for 11:00 pm on March 29, 2019.

Two years of negotiations proceeded between the UK and the EU, resulting in a) the Withdrawal Agreement (the “divorce settlement”) and b) the Political Declaration (the broad shape of the future political and trading relationship between the UK and the EU). These two documents have become known as the “Deal.”

During this period in 2017, Theresa May called a general election in order to increase the government’s majority of MPs (Members of Parliament) in the House of Commons and bolster support for the eventual Deal. The opposite happened, and the government lost its overall voting majority in the House of Commons—and thus its ability to pass legislation without coalition support.

According to UK law, Parliament must approve the Deal (the two documents) before it can be enacted. However, the Deal has been rejected three times by the House of Commons as the government can no longer command a majority amongst MPs.

Because of this stalemate, on March 14, 2019, the Government sought permission from the EU to extend Article 50 and agree to a later Brexit date. On March 20, the Prime Minister wrote to European Council President Donald Tusk, asking to extend Article 50 until June 30, 2019.

Following a European Council meeting the next day, EU27 leaders agreed to grant an extension comprising two possible 2019 dates: May 22 (should the Deal gain approval from MPs), or April 12 (should the Deal not be approved by the House of Commons). The Deal was again rejected and so on April 2, 2019, the Prime Minister announced she would seek a further extension to the Article 50 process. At a meeting of the European Council on April 10, 2019, the UK and EU27 agreed to extend Article 50 until October 31, 2019 (Halloween in the UK).

This extension period bridged across the dates for the election, across all EU member states, for Members of the European Parliament. UK elections for representation at the European Parliament have now taken place.

Theresa May has now resigned. Her talks with the official ‘opposition’—the UK Labour party (Jeremy Corbyn) —collapsed, and the prime minister’s attempts to bring her deal back to Parliament a fourth time in early June appear to have faltered. Theresa May will leave office on June 7; this will be followed by an election for a new leader of the Conservative Party and de-facto prime minister.

This article was originally published by AGN International, an association of independent accounting firms represented in more than 82 nations around the world. As a member, we receive a wide array of resources, management tools, and professional experience that complements our ability to serve our clients.

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