Sterling is set to stay low for the long-term, as major investment managers see no reason for the currency to recover in the years to come.
A weak pound should be good for exports – though the impact is coming through only slowly – but means the recent surge in inflation as imported goods become more expensive will also not be unwound.
Analysts at Northern Trust Asset Management, which looks after almost $1 trillion of assets for investors, made the prediction in their forecasts for global trends over the next five years.
“We are not necessarily expecting a significantly appreciative pound,” said Wayne Bowers, the US firm’s chief executive and chief investment officer for the European, African and Asia-Pacific regions.
“In the [Brexit] negotiation itself, we think the pound will be under pressure. It is very difficult to see in the next couple of years any reason why you would want to build a positive position in the pound,” he said, predicting the currency will follow a trajectory that is “flat to down”.
He believes this should have some positive implications for the economy, however, and that investors will not shun the UK.
“I think that has certainly protected and helped growth within the UK,” he said, praising British companies for being particularly innovative, seeking new markets around the globe in sectors from education and finance to engineering and medical science.
“There are reasons why you’d want to own UK stocks – you want to take advantage of export-driven growth, the level of IP created in the UK, the low level of corporation tax rates, the re-domiciliation of corporate activity into the UK which we think will continue.”
Asset managers typically only publish relatively short-term predictions, but the outlook from Northern Trust tries to predict big trends over the next five years.
Its asset management staff have also seen a sharp increase in the number of big global investors asking for their UK assets to be ring-fenced from their other European investments.
Between 30pc and 40pc of the investors, predominantly major global players such as sovereign wealth funds, have rearranged their portfolios so they can see the UK element more clearly, recognising Britain’s break with the EU.
“That doesn’t necessarily mean they are going to reduce it, but it recognises that they may want to either increase or decrease [asset allocation] without impacting their broader European exposure,” said Mr Bowers.
“We cannot extrapolate that the next move would be out of the UK, as there are attractive reasons why you’d want to own UK stock.”
He did note that the asset manager saw similar moves after the financial crisis when investors were cautious about holding assets in financial services firms.
At that time investors sold off their holdings in finance companies, but later bought back into the stocks and bonds and have now re-incorporated them back into their wider investment portfolios, ending their earlier segregation.
Frontpage October 28, 2019
Frontpage September 10, 2018