Brexit: Deal or No Deal

 

As 2018 winds down, we are faced with the fact that Brexit and the cloudy uncertainties it poses on UK businesses and investors continues to drag on. Although it is difficult to predict what will happen given the range of outcomes and indeed the range of forecasts on the impacts of those outcomes, we at Canada Life Investments in London feel it is important to communicate a brief analysis of it as we move into 2019.

No-deal Brexit

The greatest risk arguably is in the event of a no-deal and, as recent scenes from Westminster suggest, this is looking more likely. Nevertheless, this is not the central scenario and there is a spectrum of forecasts as to what a no-deal outcome’s impact on the economy would be. It would likely cause a considerable amount of disruption in the short term as firms adjust to the unknown environment, while the longer term outlook points to a continuation of slower growth simply because Europe is our nearest trading partner and Brexit puts obstacles in place to slow that trade. Other, faster growing markets will be available to the UK, but since they are farther away it will take time to develop and make up for losses in Europe. Sterling would inevitably take another hit – perhaps falling 10% in the short term – as inflation spikes and assets depreciate. Opportunities in UK equities could arise given the amount of non-UK earnings in the FTSE, but UK-focused companies would become much more sensitive, especially those in retail and housing. Government bonds would remain strong.

Multiple-choice Brexit

At this stage, the prospect of Theresa May winning the UK’s Parliamentary backing for her Draft Agreement with the European Union (EU) looks slim; however, the markets are likely to react positively to the possibility of another agreement being reached. UK businesses would benefit from a transition period and sterling would rally perhaps by as much as 10%. In such case, government bond prices would fall. With a bit more certainty, growth would pick up its pace and delayed spending, particularly from businesses, would bounce back.

Delayed Brexit

Markets would become largely unmoved but growth would continue to dwindle as uncertainty persisted. Volatility can always throw out opportunities, but the extent of uncertainty surrounding Brexit reminds us of the importance of diversification.

Important Information

The value of investments may fall as well as rise and investors may not get back the amount invested. 

The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeinvestments.com. Some Canada Life Investments funds may invest in property funds that may be illiquid and subject to wide price spreads, both of which can impact the value of the fund. The value of the property is based on the opinion of a valuer and is therefore subjective.

The Canada Life Investments blog page features images licensed from Getty Images International. These images shall not be downloaded, republished, retransmitted, reproduced or otherwise used in any way. Aside from the above, and unless otherwise stated, Canada Life retains copyright in and/or has a right to use all contents of this website (including text and graphics) and such contents shall not be copied, distributed, extracted or modified without the express prior written consent of Canada Life unless for private, non-commercial use.

CLI01335 Expiry 31 March 2019 

David Marchant

David Marchant

Chief Investment Officer, Canada Life Limited & Managing Director, Canada Life Asset Management Limited.

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