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UK Investment Markets: Weekly Update – March 4th 2019

Last week proved to be surprising for sterling which reached its highest level in six months after Theresa May’s offer of a delayed Brexit to MPs hit the news. Sterling instantly gained 0.5% and rose to £1.332 against the US dollar as markets appeared to approve of an extension to Article 50.

The real story for me is not the out performance of sterling to the upside, but rather the huge change in positioning. Bearish positioning on Sterling has been completely reversed, with a long bias in many fast money accounts taken out in recent days.

Right now it seems that delaying, or at least threatening to delay, until May’s deal is forced through Parliament is the most likely option.

Sterling might have jumped to very short-term highs recently in response, but my sense is that it is not fully buying a deal yet; more buying the likelihood of delay. It feels in the short term that this 10 day bounce looks overdone.

If the deal is agreed through Parliament then sterling could move another few percent higher in the short term but, ultimately, would likely drift back as the country’s economic uncertainty would be the next driver of sterling’s fortunes. I think a second referendum would see a much higher move up as Remain odds (apparently) still have the march on Leave.

All the Signs Point to a Delay, Possibly to 2020!

Developments in the UK appear to point towards a Brexit delay, with Theresa May admitting that she would be prepared to apply for an Article 50 extension if her deal fails to pass on or before 12 March. This concession became inevitable with the Cooper Bowles amendment looking set to pass, and shows once again the weakness of the current administration.

This development appears to greatly reduce the risk of a ‘no deal’ Brexit at the end of next month, as long as the EU agrees to such an extension and the UK is happy to agree to the EU’s terms for doing so.

On this point, my sense is that Brussels is aware that, as things stand, there isn’t much likely to be gained by extending the deadline by 90 days to the end of June, as it is unlikely much can be negotiated in the next three months that hasn’t been negotiated in the last three.

In this case, the EU might decide to push out an extension until December 2020, knowing that it can call the shots as the UK has already admitted that it is not currently in a position to refuse any offer the EU makes.

FCA Publishes Guidance for No-Deal Brexit

The FCA has published its near-final rules, which will apply in the event the UK leaves the EU without an implementation period. In a raft of documents published last week, the regulator laid out its proposals, which will apply to all firms – pending Treasury approval – in the event of a no-deal Brexit.

Executive director of international at the FCA Nausicaa Delfas said:  “The FCA has been preparing for a range of scenarios, including the possibility that the UK leaves the EU in March 2019 without an implementation period.

“The documents published today are a significant milestone in this work: they ensure that there is a functioning regulatory regime from day one, and that firms are clear as to the requirements they need to meet by end March 2019 and beyond, so they can continue to meet the needs of their customers.

“While we appreciate there remains uncertainty, firms should consider the impact of all scenarios on their business, and on their customers. As a guiding principle, we expect firms to adhere to our regulatory standards throughout.

“The FCA continues to prepare for all scenarios – our focus is to ensure there is as smooth a transition as possible when the UK leaves the EU, and that markets function well.”

For asset managers, the advice covers outward passporting, access to financial market infrastructure and ensuring the continued ability to meet threshold conditions.

To view the FCA’s guidance in full, click here.

CHOOSING THE SAFEST OPTIONS FOR YOUR INVESTMENTS AND SAVINGS

There is still no likelihood of any stability in the near future neither in the UK or the EU. With the focus on the UK, it is easy to ignore the mess that the EU is in economically and how the sudden withdrawal of Britain’s investment will impact it even more. From an investor’s point of view, it’s almost too risky looking for opportunities anywhere at the current time.

However, that can sometimes be a very narrow view to take as there are always anomalies when there’s economic uncertainty. In fact, when there’s market volatility, more millionaires are created than at other times in economic cycles. That said, it is definitely not a time to be greedy in terms of expecting high returns without any risk exposure. These opportunities seem to exist everywhere but they are absolutely worth avoiding, particularly if you are investing for a particular milestone such as buying a home, funding university or retirement.

At Investor Live, we are always looking for the kind of anomalies that represent safe and sound investments when there’s any kind of instability. From my point of view, it is important that the opportunity to cherry-pick exciting investments with a low-risk profile is not restricted only to those with bulging bank accounts. I represent the “normal” investor and on that basis, any recommendations I make are purely based on independent judgement.

Fixed income opportunities that are backed by tangible assets are the safest possible option for your investment strategy at the current time. You want to be sure you’ll be receiving a determined amount back for your investment and that there’s something underpinning it of significant value. One of the things to consider is not how much the asset you’re invested in is worth but how much of it is owned by the issuer behind the investment opportunity.

Investment over the short-term is always a better idea when markets are volatile and there are a few opportunities to enter the British hotel and hospitality sector for 1- to 2-year terms. One such opportunity comes from Liverpool-based hotelier Signature Living which has a proprietary investment vehicle called a Secured Partnership Investment (SPI). You can find out more about how to invest in this award-winning hotel brand that is rapidly expanding its portfolio of heritage hotels by contacting Investor Live.

About the Author

Amanda Wright is a former risk analyst at Bankers Trust, with specific experience of mergers & acquisitions and corporate finance. As a contributor to Investor Live, Amanda provides valuable insights into the technicalities of fundamental analysis in a way that is easy to understand, to provide retail investors with the tools to make considered investment choices.