Brexit! What’s next?

As we’ve been constantly hearing over the past few years in the media, Brexit uncertainty is affecting business and consumer confidence, whilst also contributing to a difficult political backdrop. But right now, the form of what this might look like is unclear, as are the related economic and regulatory implications for investments.

WORST-CASE SCENARIO

A report by the Bank of England has suggested that a worst-case scenario is indeed a no-deal Brexit, which could lead to a shrinking economy, house prices falling, unemployment doubling and inflation rising substantially. But that is the worst-case scenario, and there is some comfort in knowing that the actual outcome is likely to be better.

But there could be a scenario where there is no direct impact. For example, for a UK-resident individual investing with a UK-registered company from a UK-based bank account, it’s unlikely that Brexit would have a direct impact on their investments.

FOREIGN CURRENCY EXPOSURE

Political uncertainty and various other factors such as exchange and interest rates can all impact how investments perform. However, for some investors, the Brexit vote has up until now been good for their portfolio’s performance, as some have benefited from strengthening foreign currency exposure.

During any period of change, it’s important to be able to access professional financial advice and feel comfortable that your investments are robust and diversified enough to deal with any potential volatility and that they include a diverse mix of asset classes, geographical regions and sectors which is key.

ECONOMIC CYCLE PERFORMANCE

With so much uncertainty and gloom surrounding the UK’s imminent departure from the EU, conventional pricing of company shares has been turned on its head. This is not to say that all UK stocks have fared badly. On the contrary, many large companies that derive most of their earnings from overseas have outperformed, as have those seen as ‘defensive’ stocks that are widely expected to hold up well throughout the economic cycle.

It is often said that quality is not about any single metric, but a blend of characteristics that allows companies to deliver growing value for their shareholders over time. A quality company should, amongst other things, be able to deliver sustainable growth with a healthy balance sheet and strong corporate governance.

FERTILE HUNTING GROUNDS

Brexit, for all its unintended consequences, has opened up rare possibilities to buy stakes in quality companies at attractive valuations. By comparing share prices to company earnings, UK stocks overall look less expensive than their counterparts elsewhere in the world – especially in the US. The abandonment of logic in the face of short-term concerns over the UK economy has created particularly fertile hunting grounds for some long-term investors in the mid and small cap sectors.

It also remains too early fully to understand how Brexit may affect the cost of imported goods years from now, as so much depends on trade agreements reached between the UK and the EU (and other countries). If the pound’s weakness persists, the cost of other imported goods may also rise.

EMBRACING OPPORTUNITIES

But despite periodic and unavoidable corrections, stock markets tend to recover over time. The worst thing to do is to sell out of the market. Long-term investors need to take a pragmatic view about volatility and the subsequent opportunities. Of course, it is tempting to think that cash is the best place for long-term savings, but if investors embrace opportunities and avoid panicking, then market corrections can become a friend particularly where good quality active fund managers can continue to take advantage of low valuations of quality companies.

It’s important to remember, especially as Brexit approaches, that no matter how big a market correction, gains made during the recovery period that follows generally outweigh any losses. No one can predict exactly what will happen in 2019 and beyond, but we can safely look to history and take some comfort from the knowledge that markets are resilient. Short-term bear markets may be painful, but bull markets are very rewarding for those who hold their nerve.

IT’S GOOD TO TALK

The Brexit negotiations to date have been detailed and complex, and at the time of writing there is still uncertainty as to the final outcome and its direct impact on our personal finances. If you would like to discuss any aspect of your financial plans in the light of Brexit, please contact us.

Who are Vizion Wealth?

Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.

All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.

DISCLAIMER:

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES, OF AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS

WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

“The information contained in this article is intended solely for information purposes only and does not constitute advice.  While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article”.

Posted by Andrew Flowers

Andrew is the managing partner of Vizion Wealth and has been involved in the offshore and onshore financial services industry for over 18 years. Andrew was the driving force behind Vizion Wealth after years of experience in a number of advisory roles within high profile wealth management, private banking and independent financial advisory firms in the UK.

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