Brexit and your offshore exposure

Chris Potgieter, Head of Private Client Securities at Old Mutual Wealth

The United Kingdom’s vote in June 2016 to exit the European Union has done the country’s economy considerable harm and will continue do so for years, even after a resolution has been finalised. Since the majority of UK citizens voted for the UK to exit the European Union, Brexit has cost the UK economy roughly 2%-3% of gross domestic product (GDP) growth over this period, notes Chris Potgieter, Head of Private Client Securities at Old Mutual Wealth.

According to Potgieter, this is due to high uncertainty around the tariff and trade regime, causing companies to delay investment into the country. “Poor domestic growth in the UK is likely to continue for the rest of 2019. It is not a positive outlook for investors who have exposure to UK property, as companies in the listed property space have taken a beating. Their recovery is also not imminent.”
Potgieter states that South African investors who have taken on UK property exposure, directly or through the listed space, or to the UK domestic consumption market, might see their investment portfolio impacted. “Investors who have invested through multinational companies with diversified investments which operate out of the UK should not see a big impact on their portfolio.”

“It is not a cut and dry case as to how UK multinationals have been impacted by Brexit. It depends on the specific company’s export market. The EU accounts for just over 40% of UK exports and by the same token, EU companies export to the UK. However, not many multinationals that South Africans may be invested in are exposed to affected markets, and the extent of Brexit on multinationals, other than the property companies, is muted,” he says. He believes that UK multinationals will continue to turn a profit. “These companies continue to operate out of the UK, but their fortunes don’t depend significantly on what transpires between the EU and the UK.”

“Multinationals, such as Unilever, are well diversified and the Brexit movements will therefore not impact the multinationals as much as the domestic-facing companies. Essentially, we need to consider each company respectively to look at its profile of business, where it is doing business and whether it is exposed to cross-border activities between the UK and the EU,” Potgieter explains. “The latest in the Brexit saga is an extension until 31 October for British and EU decision-makers to reach a resolution, whether that be a hard Brexit or a soft Brexit. The latter would likely leave the UK’s relationship with the EU as close as possible to existing arrangements. Uncertainty, however, remains, and it is not going to disappear unless Theresa May and her parliament are able to agree on a transition plan by the end of October. Given what has happened over the last year, the uncertainty is likely to remain for longer,” he concludes.