Investing amid Brexit
With Brexit still centre stage on the newsstands, we asked Beresfords’ Steven Bond for his views on property investments and our partner Seven Investment Management’s Chief Investment Officer, Chris Darbyshire, on what’s important for investors to more broadly bear in mind.
- What do the many significant events of 2016 to date mean for investors from your perspective?
Clearly the sensible strategy for any Investor is to take stock of their current position and decide how best to move forwards from here on in. Although the numbers of new investors registering with us looking to put money into bricks and mortar has reduced slightly post Brexit, those that we are dealing with recognise that property in the UK has and will, continue to be a very resilient asset which has historically performed incredibly well and despite recent events this trend is expected to continue over the medium to long term.
2016 has been an extraordinary year and there remains a number of political events still to be debated, from Article 50 discussions through to the results of the US Presidential election. Brexit saw a far more positive response in stockmarkets than we expected, but was traumatic for Sterling. Political developments are now driving markets far more than they have done historically, with mainstream political parties blown apart by the issue of European Union membership.
Recent market events have helped reinforce our message to clients: it’s important to be invested as diversely as possible. That means spreading your investments across companies, sectors, geographies, currencies and various types of investments to ensure that your portfolio can weather any squalls.
- Recent headlines have singled out property as potentially being negatively impacted by the Brexit vote. What’s your view?
I’ll leave Steven to cover off the property story, but for us it has been the Pound Sterling that has borne the brunt of investors’ anxieties. The FTSE 250—an index of companies that are more focused on the UK’s domestic economy than the FTSE 100—has rebounded after the initial negative reaction to the referendum result. The FTSE 100 meanwhile has held up well in Sterling terms, as investors recognised the increased value of overseas earnings given the lower value of the Pound. The key question, however, is Sterling. The Pound has been pricing in a great deal of economic and political risk, more so than most other assets.
Recent changes to mortgage interest relief and stamp duty thresholds for landlords, combined with Brexit, has inevitably made some investors hesitate whilst others are pushing ahead with their plans. Many recognise that buying a property to rent out not only provides a regular income stream from the rent generated, but also offers potential for future capital growth.
The local rental market remains buoyant with large numbers of tenants chasing a limited supply of available property; so many investors believe rents will continue to increase.
Furthermore we are not building enough new homes in the UK to satisfy demand, so although the residential market has cooled in some areas post Brexit, this is not expected to continue for very long. Generally the view is that prices will rise again over the medium to long term as demand continues to outweigh supply and with the arrival of Crossrail into Essex from 2017, this will further stimulate activity within the local market.
3) How do you see events playing out in the next few months and what do you think investors should be doing to protect and enhance their wealth?
For existing property investors it’s very much ‘business as usual’. Demand is high from tenants and rents are still rising. Most have a long-term strategy so will retain their assets and enjoy the rental income they generate. Others will pick their moment in the future to ‘cash in’ and sell.
Those thinking of entering the market are likely to wait a little longer to see if there is any dramatic changes post Brexit. However by now they are already aware of how changes to stamp duty surcharges and mortgage interest relief will affect them and should only enter the market if they intend to be in for ‘the long haul’ as this is where the most lucrative returns can often be achieved.
Looking at the economic data, growth in Asia and the US looks likely to accelerate. Asian economies in particular present a good long term investment case due to the growth in the middle class, as well as benefiting from US economic growth. We currently favour the US and Asia over markets nearer to home.
The value of Sterling will depend primarily on politics over the next few months, and we feel that there are still some surprises in store.
Stepping back from the markets, there is a weight of research showing that attempts to ‘time’ the market result in significant lower levels of returns over the long term. So, while investors are wary of the impact of political events scheduled for the rest of 2016, the global growth story remains solid enough and so we encourage people to remain invested.