Talking Point 

UK investors warned of 'no deal' Brexit risks

UK investors warned of 'no deal' Brexit risks

Investors should be prepared for lower investment returns from UK listed equities if the UK departs the European Union in March 2019 without a deal, an advisory firm has warned.

On Wednesday (8 August), national advisory group and tax specialist Bishop Fleming warned that some UK sectors are likely to see their supply chains disrupted if the UK leaves the European Union without a deal in place, which could have stark effects on the financial performance of stocks within these sectors.

“Whilst many businesses may not be affected at all, there will be many others who will be, such as in the food and drink industry,” Bishop Fleming director Wendy Andrews explained in a statement.

“A no-deal Brexit could mean lorry queues building up at ports, as the previously smooth import and export of goods disappears, to be replaced by new customs checks. Goods that are meant to arrive just in time at their destination, or are perishable, could then be delayed, affecting stocks and production and ultimately sales.”

The warning from the advisory group comes amid a series of warnings from Bank of England governor Mark Carney.

On 3 August, FTAdviser reported on Mr Carney's comments that a disruptive Brexit may force the Bank to choose between sustained higher levels of inflation or putting the brakes on economic activity.

Mr Carney predicted the impact of a no deal Brexit on the UK economy will be similar to a banking crisis, with a deep recession, and a sharp drop in house prices.

Ms Andrews added that investors should be aware for the potential for new taxes to be imposed on goods crossing borders, which would potentially hit businesses profitability levels.

However, Guy Stephens, a technical investment director at Rowan Dartington, said that while these risks were indeed a potential threat to publicly listed UK companies, there was still no guarantee that UK equities will fall.

He said: “Even a no deal Brexit scenario, which will affect sterling, doesn’t necessarily mean UK equities will fall, as 75 per cent of FTSE-100 earnings benefit as sterling falls."

In 2016, shortly after the result of the vote to leave the European Union was announced, sterling hit a 128-year low, although it has gradually rallied since then.

But Mr Stephens said he remained sanguine about prospects for UK markets. He added: "It always seems to surprise how the initial shock tempers over time as earnings continue onwards, unabated. It is always the unknown unknowns that cause the damage. 

“What don’t we know? For now, we would relax as any Brexit agreement or tariff tempering will please markets. However, we wouldn’t shout about this too much, because something new is always around the corner."