UK assets look cheap right now, but the political uncertainty is such that most other asset classes represent better value, according to the manager of the UK's oldest investment trust.
Paul Niven runs the £4bn Foreign and Colonial investment trust, which has been around for 150 years. It has paid a dividend for every one of those years, and increased the dividend for over forty years in a row.
Mr Niven has been at the helm of the trust since 2014, and for much of that time has been reducing the UK exposure of the fund.
He said this was to make the trust more global in its focus. Mr Niven was initially cautious about reducing the UK exposure as a significant slug of the income in the trust was generated from the UK.
But he said there hasn’t been much difficulty in finding income from overseas equities, reducing the long-term need for the trust to invest in UK assets.
In the short-term, he said the UK market looks “cheap” but the risks are too great.
Mr Niven said: “You have the Brexit negotiations. I can’t see an outcome that could be positive, the best that can happen is a long transition period and that will create a lot of uncertainty.”
Chris Godding, chief investment officer at wealth manager Tilney said he is very confident that global equity markets will perform well in 2017, but he is also wary of investing in UK assets.
Mr Godding said equities should perform well and global economic growth continue despite higher interest rates and tighter monetary policy.
He flagged traditional economic theory that economic growth is a function of the supply of money and velocity of money - the speed at which it moves through the economy - as the indicators he is watching.
In times of economic growth and economic confidence, the velocity of money is fast, as people spend and borrow. If people are not confident about their economic prospects they tend to hoard cash and restrain from borrowing, which means the velocity of money slows down.
Since the financial crisis, according to Mr Godding, central banks have concentrated on the supply of money, increasing it via quantitative easing to provoke commercial banks to lend more. Mr Godding said this policy has led to higher asset prices and improved economic growth.
As the US Federal Reserve and other central banks stop creating extra money, it might be expected, according to Mr Godding, that asset prices and economic growth suffer.
He said he expects the speed money moves through he economy to pick up the slack as low unemployment increases the level of confidence in the world economy, boosting growth.
But Mr Godding said his optimism about global markets does not hold for the UK.
He said the uncertainty of Brexit is likely to mean confidence about the health of the economy remains muted, and that means the velocity of money in the UK will not pick up, even as tighter monetary policy around the world takes effect.