At this early stage in the process details are limited and it would be wrong to jump to any conclusions. The only thing that we can say with absolute certainty is there will be uncertainty over the next 2 years whilst the UK negotiates the terms of the deal with the EU.While the referendum result takes the EU into uncharted territory, in the short-term nothing has changed, nor will it until two years after the triggering of Article 50.
As investors have been reminded since the Brexit vote, UK equities are not purely a UK investment but a view on global growth, with 70% of revenues sourced overseas. With global growth forecasts showing signs of improvement, UK companies stand to benefit. Sterling weakness, as a result of the vote, has boosted UK earnings and improved the terms of trade for many UK companies supplying goods and services around the world. This is reflected in unexpectedly strong manufacturing data. One consequence of weakening sterling has been increased inbound M&A as global companies look to pick up their UK counterparts at a cheap price, another is that a UK workforce is now relatively cheaper than it was prior to the referendum. UK equities have shown significant resilience so far. The most recent reporting season for UK companies was strong. Estimates were beaten on both earnings and, more importantly, on sales.
The uncertainty that Brexit presents should benefit active managers. Each deal negotiated, along the path to a UK outside of the EU, will either be positive or negative for individual companies and this will be a constantly moving goal post. The government will also, no doubt, do all it can to support British businesses. For investors, selectivity and agility will be key.
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