Which stocks could benefit despite Brexit
The UK’s exit from the EU is still causing negative headlines: queues at the borders, increased bureaucracy and more. However, UK fund managers are optimistic and see the obstacle removed.
Dhe January figures for German-British foreign trade were sobering. German imports fell by 56 percent compared to the previous year, and exports by almost 30 percent. The analysts at Unicredit see Brexit as the main cause for this, which makes cross-border trade unprofitable for some companies, but also the inadequate preparation in Great Britain, which has created massive uncertainties for companies.
If you ask British fund companies, however, they are relaxed. “Both the UK and the euro area are currently very attractive from a global perspective,” says Matthew Beesley, Director of Investments at Artemis Funds Managers. The Brexit is more or less a topic of yesterday. With the portfolio companies, a few things are slower due to the larger bureaucratic burden, but actually there is no major problem.
Small caps fund manager Andrew Clifton of wealth manager T. Rowe Price shares the view. The companies had correctly assessed the consequences of the exit in good time and took measures, such as relocating warehouses or diversifying supply sources. “And for small and medium-sized companies, Brexit is usually of less relevance,” he says. In principle, these are more oriented towards the domestic market. Of course, a few things have changed, and that will continue to be the case, but overall, Brexit is just a cross-flow. And if, for example, companies now prefer deliveries from closer suppliers, the corona pandemic is more responsible.
Cheaper for a long time
“Brexit has been an immense burden on the stock market over the past five years. A quarter of the capital invested in Great Britain has been lost during this period. The euro area was similarly unpopular with international investors, ”says Beesley. With corresponding consequences for the valuations: These are now lower than they have been in two decades, so the basis for good future performance. Almost every industry is extremely cheap, both historically and in comparison to its American counterpart, and the same applies to the euro area. Beesley sees the strong influx of private equity capital since the beginning of the year as an indication of a trend reversal. “The weakness of the dollar is making American investors look for opportunities overseas. So if the securities markets don’t correct the low valuations first, the private markets will. “
However, there are a few exceptions. The increased bureaucratic effort is currently making life difficult for food manufacturers, but above all there are concerns with regard to the financial industry. “The financial service providers need even more security with regard to access to the European market. There’s a reason their stocks are trading so cheaply these days. As they make up a large part of the UK stock index FTSE, their prices also weigh on it.
In addition, the low interest rates are of course a burden. On the other hand, sectors that could particularly benefit from the recovery from the corona pandemic, such as the travel industry or retail, are particularly attractive. As far as Corona is concerned, the United Kingdom even has an advantage. On the one hand, they are continuing with the vaccinations, on the other hand, tourism does not make up a large part of the economy. “Tourism can be a growth driver for the euro area. But I am not sure whether this is ready for it. “
Clifton also prefers a European perspective. “Ultimately, focusing on the UK is not our strategy. At the end of last year, our portfolio contained 44 percent shares in UK companies, but it was only 20 percent dependent on the UK economy. ”Clifton relies on companies with sustainable growth prospects, products and services that differ and that are well managed , no matter where they come from. This is also an advantage with a view to Brexit, admits Clifton: “Brexit certainly has more influence on companies that have less strong competitive advantages.”
The market movements during the pandemic certainly caused movement in the portfolio. Some stocks have become too expensive, but the portfolio has not been overtaken in principle. For example, they are sticking to Trainline, which sells train and bus tickets and whose course has still not fully recovered from the slump in the wake of the Corona crisis. But, Clifton is convinced, the company will come back with verve. In any case, from a three to five year perspective, it is a growth company. In terms of country allocation, Germany is number two in the portfolio. Here Clifton relies on shop pharmacy, the online marketplace Scout24 or the broker Flatex, but also on the Norma Group or the mechanical engineering company Aixtron.