Buy Britain: Post-Brexit Bargains to Bag Now

30.06.2016 • Emerging Markets

From MoneyWeek (Great Britain)-

The UK has voted to leave the European Union (EU). In the process, both of our major political parties have collapsed into leadership battles (see page 18), politicians across the EU are giving varying views on what will and won’t be allowed, and investors across the globe are struggling to work out just how important Brexit might be, or if it will even happen. Our own view is that, given time, the UK is likely to end up with a Norwaystyle deal that leaves things mostly as they are, but with the UK less tightly tied to the EU (see page 14 for Matthew Lynn’s take on how this might work). But what happens to markets in the meantime?

The FTSE 100 took a brief knock, and the FTSE 250 – being more domestically orientated – took a harder one. Sterling has slid to a 31-year low against the US dollar (though it’s not quite as drastic against a broad basket of currencies – the trade-weighted sterling index is hovering around 2013 levels).

But some of the more apocalyptic warnings haven’t yet come true. Pre-Brexit, Chancellor George Osborne warned that borrowing costs would rise as investors attached more of a risk premium to British assets. Yet gilt yields have plunged even further – it now costs Britain less than 1% a year to borrow money for ten years. That suggests that whatever else investors think of Brexit, they don’t deem it inflationary, and they still think that British government debt is a relatively safe place to stick their cash. As a result, we might see even cheaper mortgages – HSBC put out a two-year fix at 0.99% (albeit with a £1,495 arrangement fee) just before the vote and we could go even lower now, Ray Boulger of John Charcol tells Money Marketing. “Most mortgage lenders did not pass on much of the pre-referendum reductions in rates so we can now expect to see a bit more price competition, especially in the longer-term fixed rates.”

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