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Investing into the UK market. Opportunity or risk?

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The United Kingdom is currently being vetted by millions of investors.  Will it be an opportunity or a risk in the wake of the geopolitical and financial climate.  The US election, the fallout of Brexit, European national security, and certain currency exchange risks should all be considered as a component to your research. 

 

I’ve attempted to outline some of these problems below.  It is clear; this will not be an easy choice.  Your decision will end up being a byproduct of your worldview mixed with your level of acceptable risk.   

 

Current Business Environment

 

In my research, I came across a lot of information showcasing risks and rewards for investing in the UK.  Below is a list of my cumulative research conclusions:

 

1.After New York, London is the next “Financial Hub.”  This creates trust in the system.  Anytime there is trust in the system, there is opportunity.

2.As part of the aforementioned financial hub, the UK is home to some of the largest companies in the world.  Further helping create a stable investment environment. 

3.The UK has a more than talented workforce

4.A simple and competitive tax system is in place to further breed investment.

 

Terrorism

 

With a rise in terror attacks across Europe, this can help push UK closer to the risk column for your portfolio.

 

In 2016 alone, there were 36 documented terror attacks striking fear into the European public.  The attacks have affected Germany, Belgium, France, Denmark, England, Scotland, & Sweden. 

 

This fact does not help foster a stable investment environment.  While Europe has done an amazing job of moving forward, the wild swings associated with national news need to be considered.  If you are looking to buy and hold, they may not affect you as much as the short-term trader. 

 

At the end of the day, it’s all about the level of risk you are willing to accept.  Your financial advisor should not decide for you, only you can make that decision.   

 

Post-Brexit

 

The FTSE and the UK property markets have generally held there ground post all of the Brexit commotion.  That being said, the luxury home market has slumped after the Brexit vote.  This is a fact most have not centered in on. 

 

From my perspective, this means that the higher tiers of income earners have scaled back their investment activity, which could be a bad sign for the UK market.  I tend to follow the trend of those in the higher end of the spectrum, as the effect of their actions later trickle down to those below.      

 

According to an article by the Guardian:

 

“The number of new-build properties sold for more than £5m in the six months to the end of October was down 83% on the same period of 2015, according to LCP. The number of transactions fell from 52 to just nine.

 

Large falls were also recorded across England and Wales on other high-end properties, with sales of homes costing more than £10m down by 75%, from 61 to 15. Transactions for all UK properties costing between £5m and £10m were down by 51%, from 201 to just 99”

 

I don’t know about you but those kinds of numbers won’t bring in more opportunity for newcomers. 

 

The Low Pound

 

A good reason to tap into the UK market is their currency, known as the Pound.  Of late the Pound has been lower, as compared to other currencies around the globe. It was recently twitted by MoneyTransferComparison.com that the pound-euro rate is expected to further decline at around March when Article 50 will be negotiated between the UK and the EU. This creates a very attractive environment for inward investment. 

 

Investors are always looking to get more for their money, low currency valuations are a sure fire way to do so.  I couldn’t imagine more than a few companies making their way toward the London exchanges for this reason alone, but in combination with other favoring factors, this definitely can help.

 

The Risky US Market

 

The UK market can serve as a good alternative, especially if you are feeling unsure after the Donald Trump victory.  Agree with his policies or not, his actions are not easily predicted.  This is a characteristic no market looks forward to standing behind. 

 

How to Invest in the UK

 

A very popular vehicle, in recent years, has been ETF’s.  For a foreign investor, this will be the easiest way to make it into the ring.  Some ETF’s targeted toward the UK to consider are:

 

1.EWU – iShares MSCI United Kingdom ETF

2.HEWU – iShares Currency Hedged MSCI United Kingdom ETF

3.FKU – First Trust United Kingdom AlphaDEX Fund

4.DXPS – WisdomTree United Kingdom Hedged Equity Fund

5.EWUS – iShares MSCI United Kingdom Small-Cap ETF

6.DBUK – Deutsche X-trackers MSCI United Kingdom Hedged Equity ETF

7.QGBR – SPDR MSCI United Kingdom Quality Mix ETF

 



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