Brexit negotiations are coming to an end and numerous uncertainties are looming. Based on current developments, the UK could separate from the UK under a no-deal Brexit. This means that, unless something significant changes, the UK could leave the European Union without any separation agreements and trade agreements in place.
The impact of Brexit on trade, tariffs, prices of goods and services, and public finances will be sweeping. Brexit is also expected to have monumental implications for stock markets, asset classes, and investments. Brexit will inevitably have a substantial effect on the stock markets and share prices.
However, it is important to remember that the UK stock market is resilient. There will certainly be periods of volatility and reduced stock prices, but the markets are also expected to recover soon enough. Therefore, economic conditions can begin to recover once the uncertainty subsides. The panic will not last forever, growth will resume, and the currency will regain its strength. Thus, Brexit may impact the portfolios of UK investors negatively in the short-term; but the long-term returns are likely to remain unaffected.
In fact, the transitory downturn of the stock markets may represent an opportunity among the adversity. The period of uncertainty and compromised liquidity can bring more long-term stability for equity and debt investments. The prices of financial securities may suffer, but the values will likely remain intact and potentially even strengthen due to low interest rates and limited supply.
So, if you’ve been wondering whether to withdraw your investments in the UK market or remain invested, the answer lies in the long-term perspective. Brexit may have a negative impact on stock markets and financial instruments, but if you invest intelligently and in suitable securities and Brexit-proof funds, your investment should grow well and generate the returns you’re looking for.
Brexit investment opportunities
Suitable ETFs for a deal and no-deal scenario
In the case of a no-deal Brexit – the most likely scenario – the value of the pound sterling is expected to go down, and the prices of goods are expected to rise. As a result, inflation and interest rates will almost certainly be affected (though it is unclear in which direction). The most attractive investment opportunity in this situation could be in ETFs that invest in inflation-protected government bonds, like the iShares GBP Index-Linked Gilts Ucits ETF.
On the other hand, in the event of a trade deal, confidence in UK assets could get a new lease of life. The confidence of investors in the stock market will feel a boost and companies dependent on trade with the EU could see an uplift. In this situation, it might be ideal to invest in FTSE 100 and 250 companies, comprised of the smaller UK-listed companies. One of these funds is the Vanguard FTSE 250 Ucits ETF, consisting of distribution and accumulation share classes, with a low annual fee. Also, any respectable trade deal should also lift up the share prices of European manufacturers, making ETFs like iShares STOXX Europe 600 Industrial Goods & Services Ucits ETF potentially attractive for investors.
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Investment in foreign currency
One alternative for post-Brexit investment is to withdraw from investments in the UK and invest in other countries and currencies. Investors can move their investments out of the assets based in the UK and the EU and direct them towards other countries, like the US. This can reduce the impact of UK-based volatility in the medium term, as well as falling stock prices and other detrimental consequences of a no-deal Brexit. One of the most well-rounded ETFs in this category includes iShares $ High Yield ETF.
Additionally, investing in ETFs denominated in a foreign currency will also work to dampen the effect of any local currency fluctuations. If (and when) the pound loses value as a result of a no-deal Brexit, foreign currency-denominated ETFs can be sold to generate higher income and return profits.
Opportunity in gold and precious metals
It is commonly emphasised that gold and other precious metals follow an inversely proportional returns profile when compared to traditional securities, like stocks. Gold investments are considered ideal for protecting your investment portfolio against a downturn. Thus, Brexit could be an opportunity for investors to buy gold and precious metals to hedge their risk. If the economy of the UK crashes, the value of the pound would fall, sending the price of gold up. So, investing in physical gold can serve as the best possible currency hedge to protect against the falling value of pound sterling.
A no-deal Brexit could potentially endanger the property market in the UK. However, if the properties are carefully picked and selected, investment in property can serve as an attractive post-Brexit investment. Due to the low-interest rates, the cost of buying a property in the UK is cheaper than ever at the moment. The real estate sector may show temporary low phases but, in the long-term, returns on real-estate investments remain intact. So, investment in properties may be a good alternative post-Brexit due to better rental yields, positive prospects for capital appreciation, and a low entry price point.
How to find the best investment opportunities
The important thing to remember with Brexit is that all hope is not lost. Brexit seems likely to have a negative impact on the stock market and investments in the UK; however, carefully-chosen investment opportunities can help save investors during what could be a tricky period.
It is important to focus on the long-term and to not make snappy decisions. The stock market and investment portfolios might be rattled at the moment, but the storm will subside. It is also important to diversify investments across different asset classes, currencies, and sectors to cushion the blow. A well-balanced portfolio will, as always, prove to be the most helpful thing in riding over the highs and lows of Brexit and limiting its impact.
Investors may want to look for alternative opportunities, including gold, Brexit-proof funds, and investments denominated in foreign currency to weather the storm and generate high returns with as little risk as possible.