Brexit – it’s not only the talk of the nation, but of the global economic discussion. According to the latest poll, during the past week the Leave campaign was ahead at 53 per cent of the vote while Remain sat behind at 47 per cent. No one knows whether these figures will be replicated on the referendum polling date, especially considering the inaccuracy of the polls during the last election.
As for the impact on the UK economy, there has never been more uncertainty over the future. Upon the announcement of the results of these polls, both sterling and the stock market dropped, giving cause for concern for private and corporate investors of further volatility and uncertainty ahead of June 23rd. According to a well known recent report, brokers are preparing for a surge in trading during the coming week in the run up to Thursday, and this is unlikely to change once the outcome is revealed. Regardless of the outcome of the public vote, it seems inevitable that turbulent times lay ahead for stock markets.
Upheaval and Uncertainty- Can Investments Withstand the Referendum?
The outcome of the EU referendum can only be hypothesised. As the first event of this kind, and therefore without any sort of historic data, economists cannot give an accurate projection of the fiscal situation ahead for the UK or for the EU. The Brexit campaign has been hyped in the media which, in an age of digital trending encompassing online opinion sharing and social media speculations, has made it difficult to clarify any defined facts and plans for either outcome on polling day. For private and corporate investors, and businesses and individuals, it is understandable that they are looking for guidance in order to make financial decisions both now and in the immediate short term without negative impact, and to minimise losses.
“Short term, there will be negative effects from the Brexit if it is to go ahead. Markets do not like uncertainty and lack of confidence, which, of course, will stop countries, companies and investors from investing in the UK,” speculates Simon Calton, CEO of Carlton James Sky Watch Inn.
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The International Monetary Fund (IMF) issued a warning that leaving the EU will cause the UK to fall into recession as soon as next year. In a report published this week, the IMF shared its view that should the Brexit take place, the result would be reduced trade and financial flows with other EU members and lower investments, accompanied by higher financial market volatility. The report suggests that Britain could fall into recession as quickly as 2017, and that GDP could fall by around 5.9% by 2019.
One of the main concerns for investors, trade partners, and businesses is the consultation period should the UK vote to leave EU membership. The IMF report hypothesises that the lengthy procedure negotiating new trading terms with the EU is likely to cause huge upheaval for investors. Around 45% of UK exports go to the EU*, making it the largest trading partner and one whose regional variations may create ripples throughout communities. For London, a Brexit could result in the relocation or closure of global financial firms that operate out of the Capital in order to enjoy the benefit of being passported into Europe through regulation in the UK. For the North East of England, exports to the UK account for 13.4% of gross added value, which is reflected throughout other regions, and should a Brexit occur, and trade tariffs are changed, this is likely to take a hit.
Prolific UK investor, Bill Gates, who has made over £1billion investment within the UK, has voiced his concerns that a Brexit would be detrimental to Britain. Mr Gates voiced, “It is clear to me that if Britain chooses to be outside of Europe, it will be a significantly less attractive place to do business and to invest.”
Simon Calton continues, “The prospect of the U.K. leaving the EU could have major implications to global markets. Confidence is key for trade, markets and our society’s economy as a whole. Media speculation and the reactive nature of social media may have a damaging impact on public confidence, but it is important to remember that most economic issues are short term and once stability returns, confidence grows as well.”
“In any economic environment undergoing, there are always opportunities to invest and grow. I believe diversity is the key to securing our financial future, for example, investing in US property will become attractive as a long term approach. When doing so, it is key to research the state, county and city where any investment opportunity may exist to really protect yourself against major global events.”
As an example, as the demand for hospitality in the US continues to grow, many hotel owners are seeing their properties reach 80%+ occupancy leaving those without suitable rooms to travel further afield. Notably, Carlton James borrower Sky Watch Group, an expert in this field, leverages this expertise in its ongoing acquisition of hotel/hospitality sites and land in emerging high demand regions and midscale investment areas. In addition, the strategy here is to look for sites that have significant additional ‘Value Generators’ (factors which drive revenue to a development) such as proximity to an oil field, a shopping mall, highways, and many others – some of which are identified after acquisition. These properties, leveraged by state-of-the-art corporate structuring deployed by the Carlton James Investment Group, adds significant value to an investment by generating solid returns, relative protection from outside factors, with built-in hedging and severely mitigated risk. These investments are conducted entirely between the USA and UK, thus providing a viable diversity option, and already hedge against ‘Brexit’ for most portfolios.
MrCalton concluded, “If you invest wisely now, you can utilise the foreign currency fluctuations to your advantage. Investing in US Dollar products which are short term (2 – 4 years) could mean that you could add an additional 25% – 75% on your returns over the investment term.”
As we enter referendum week, it is inevitable that the media campaign will step up a notch and we may see further volatility and turbulence in the stock markets. Exploring alternative investment avenues can give investors the opportunity to expand and diversify in a time of upheaval and uncertainty within Europe.