Despite the uncertainty surrounding Britain’s vote to leave the European Union, investors seem to be taking a wait-and-see approach to their holdings in the country.
That’s the view from State Street Corp., which has been tracking investor sentiment following last year’s referendum on a quarterly basis. A report released this month shows 63 per cent of institutional investors plan to maintain their British holdings over the next six months. About 13 per cent of investors surveyed believe they’ll increase their British holdings, while 16 per cent expect to decrease them.
“The market moved quite dramatically in the wake of the vote, particularly in currency,” says Andrew Torres, managing partner and chief investment officer at Lawrence Park Asset Management in Toronto. “But I think you’re seeing investors say they want to see a plan and see how the U.K. intends to deal with it before they make a move.”
Torres says such a pragmatic strategy makes sense. “My personal feeling is there’s no point selling in a hole. The last thing as an investor you want to do is sell at the lowest.”
Other institutional investors, such as Brandes Investment Partners, are taking an active strategy because they see potential for certain investments. “We’re overweight in Britain and Europe,” says Louis Lau, director of investments at Brandes, noting multinational companies in areas such as the pharmaceutical and banking industries are flourishing despite Britain’s plans to leave the European Union.
The companies “just happen to be headquartered in Britain, but a lot of their earnings are coming from the outside,” says Lau. He notes that while exporters will benefit from the drop in Britain’s currency, retailers can also see an upside if there’s an uptick in inflation.
“If there’s inflation coming into the U.K., some of the retailers might benefit because they could raise prices and beef up their profit margins in the process, versus an environment where there’s no price increase,” says Lau.
Torres, however, says it’s difficult to make any economic projections for Britain in the next few years. “I don’t think it’s entirely in Britain’s control,” he says, noting much of the outcome depends on what the European Union decides to do. “There’s some that would like to make an example of Britain, that if you exit, you’re going to lose and we’re not going to give you the same access to our market. But others have a more pragmatic view and say Britain remains an important market and it would be unwise for Europe to punish them for what’s happened because it would hurt them as much as Britain.”