Brexit fears highlighted over UK property, financials

Swiss private bank Lombard Odier, and French manager Carmignac have warned investors who are concerned about a UK exit from the EU to stay away from UK property and financials, among other assets.

The warning comes as UK bank HSBC has publicly announced that it is set to retain its global headquarters in the UK – it had previously threatened to move because of factors such as the tax rate being applied to financial institutions, but in a statement said it had faith in remaining based in the jurisdiction.

“The UK is an important and globally connected economy. It has an internationally respected regulatory framework and legal system, and immense experience in handling complex international affairs. London is one of the world’s leading international financial centres and home to a large pool of highly skilled, international talent. It remains therefore ideally positioned to be the home base for a global financial institution such as HSBC.”

However, it is exactly that reliance of the UK and London economy on financial services that is highlighted as a risk to investors, according to Samy Chaar, chief economist at Geneva-based private bank Lombard Odier.

“Britain’s current account deficit is 4.7% of GDP – so it relies on foreigners investing in the UK to close the gap.  So is this the time to conduct a vast stress-test of the UK economy – because that is what Brexit amounts to – and risk scaring off foreign investors?”

“Those concerned about the impact of Brexit should avoid anything that relies heavily on foreign investor demand – like prime London property.  Avoid UK banks and keep a low exposure to sterling.  Instead choose high quality corporate bonds issued in dollars.  For those with more stomach for short term volatility emerging market government bonds – in local currency or dollars – have been hit hard in recent years, they offer good value and will be barely affected by Brexit if it comes.”

Jean Medecin, member of the Investment Committee at Paris-based Carmignac, added: “Sterling is the weakest link where Brexit is concerned.  It’s likely to be thumped by uncertainty as the Brexit poll approaches and if Brexit actually happens it will get a right hook.”

“Worried investors need to diversify.  US Treasuries offer a safe haven from Brexit and offer a decent return yield of 1.7%, above UK gilts at 1.4% and French government bonds offering just 0.6%. Equity investors should favour UK large companies.  They tend to have overseas earnings while UK small companies are more domestically-focused. Avoid financials – London is the European financial centre and may suffer upheaval on Brexit. Some companies will benefit, notably UK manufacturers exporting around the world like Smiths Group, or multinationals like SAB Miller – merging with AB Inbev.”


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