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A wall of cash could be deployed into markets once Britain leaves the European Union as Research in Finance’s recent Pulse study found a significant number of private investors are readying cash positions for investment post-Brexit.
In the second Private Investor Pulse study, which is an online quantitative study surveying 359 private investors based in the UK and was carried out in September, 33% of respondents will take action with their investment portfolios in the event of a hard or no-deal Brexit with 16% indicating they would be deploying cash to take advantage of low price opportunities (see below chart).
However, the long-suffering UK equity asset class – which has seen £4bn of outflows in the last year alone – is unlikely to see much of the deployment with 11% of respondents saying their portfolio adjustments would likely include a reduction for UK equities. 13% said they would adopt a ‘wait and see’ approach, while 6% said they would look further afield for global opportunities.
Britain is set to depart from the EU on 31 October and opposition MPs to Prime Minister Boris Johnson have attempted to thwart the PM’s latest Withdrawal Agreement and even push for a second referendum, but it appears at this stage (22 October) that the UK is on course to exit by Halloween without further delays.
The Financial Times reports that when MPs vote on the Withdrawal Agreement Bill in the House of Commons today, it will scrape through by 320 to 315, becoming the first time politicians have backed any kind of Brexit deal.
Many investors have already adjusted portfolios to prepare for Brexit; when asked ‘in the event of a hard Brexit (no deal Brexit) occurring, will you be taking any action with your investments?’ 42% of private investors in RiF’s Pulse study indicated they had already taken action and would therefore not be making any further changes.
Of this portion of investors, 28% said they has increased global exposure, while 22% said they had reduced UK exposure or had no exposure to UK equities. 14% said they upped their cash positions and, in a further flight to perceived safe havens, 5% said they had bought precious metals gold and silver. Only 5% said they had increased exposure to the UK.
Despite Johnson’s urgency to push through a deal within the next nine days, 41% of private investors forecast Brexit to be delayed further from its 31 October deadline, while 12% predicted there would be no Brexit at all.
Confidence in UK economy
With so much uncertainty, it was unsurprising to find that private investors also demonstrated a shift downward in their confidence in the UK economy; 41% of those surveyed said they were ‘unconfident’ in the UK economy, a rise from 32% in July. Those who said they were ‘confident’ in the UK economy dropped from 38% in the July study to 31%.
In turn, investors’ attitude to risk has declined; only 39% said they had a ‘higher risk’ attitude when it came to their investment portfolios, down from 43% in the previous study. 47% said they were ‘medium risk’, while 14% said they were ‘lower risk’, up from 11% in July.
The ESG and sustainability story is moving at such a speed these days. The last couple of weeks alone have seen a number of gusts shifting the sands of the sustainable investment landscape.
The FCA poked its head up over the dunes, outlining its action plan on climate change and green finance for this quarter and 2020 in a Feedback Statement. Asset managers: expect scrutiny of your sustainable funds as the regulator aims to weed out greenwashing, further guidance on stewardship, and better climate change-related disclosure from issuers. The statement also gives a nod to the EU Sustainable Finance Action Plan, a fairly sweeping initiative which includes proposed amendments to suitability rules, requiring pension providers and retail intermediaries to take account of ESG preferences in suitability assessments.
If FCA efforts represent the stick, Government ones may well provide the carrot. At SRI Services & Partners’ annual event during Good Money Week (5th-11th October), UKSIF’s Simon Howard signalled that the Treasury is, at the very least, receptive to the idea of aligning carbon net zero targets with government spending priorities.
Meanwhile, Extinction Rebellion protestors have taken to the streets. Whether you agree with their methods or not, their disruption and defiance make their cries of climate emergency impossible to ignore. It is hard to forget the image of grannies and rabbis being dragged from their sit-in protests in a hurry.
And just on the horizon, we see the blurred outline of the UK’s new Environment Bill coming into focus, with a raft of environmental protections aimed at improving air quality, restoring wildlife and reducing plastic waste. Given the Conservative Party’s historical voting record on climate change-related legislation, the passing of this bill would mark a significant policy shift.
Yes, we are still a nation that fracks, a nation that seems intent on expanding airports. But the prevailing winds are for a more sustainable economy.
Sustainability nay sayers: you can no longer bury your heads in the sand.
Annalise Toberman, Head of Insight