What Does Brexit Have in Store for Cash Investors?
With a March 29th deadline looming for the UK to leave the European Union, there is still no decision about how the departure will be managed. In the two years since a popular referendum triggered the Brexit process, negotiations over a deal for a smooth exit have been unsuccessful.
Scenarios range from a “hard” Brexit, with potentially huge financial and economic disruptions, to a negotiated solution providing a more orderly transition out of the EU over time, to the (admittedly slim) possibility that there will be another vote entirely that might reverse the decision.
What does this uncertain state of affairs mean for institutional cash investors? To find out, read this month’s Capital Advisors Group research report, Brexit: An Overview. In it you will find an update on the latest developments in the saga (there’s a strong chance the exit will be delayed to find a deal all parties can agree on). Equally important, it provides a longer term look at the possible impacts, not just on the economy but on specific industry sectors.
A Brexit-induced recession in the UK that might spread across the EU is one possibility. Slower growth in Europe may tend to keep a lid on Central Bank interest-rate increases, which have already slowed to a crawl in the U.S.
Less obvious are sector-specific impacts. For instance, in the UK’s automotive sector, new investment plunged 46% in 2018 as manufacturers repositioned for a more challenging European trade environment. And in the financial sector, although major London banks have spent the past two years preemptively moving many of their operations and personnel to Europe to minimize the impact on operations, there is still plenty of risk in the uncertainties ahead.
Cash investors are best advised to conduct a thorough top-to-bottom assessment of possible Brexit exposures in their portfolios—especially credit risk in sectors expected to suffer the most immediate impacts. If you haven’t started yours, now is the time. March 29th is just around the corner.