Investors pull billions from UK on prospect of no-deal Brexit

Portfolio managers reduce equity exposure in Britain after Boris Johnson’s rise to power

Is the UK stock market ‘unloved, under-owned and cheap’? Photograph: Luke MacGregor/Bloomberg

Is the UK stock market ‘unloved, under-owned and cheap’? Photograph: Luke MacGregor/Bloomberg

 

More than $4 billion has been pulled from UK equity funds since Theresa May announced her decision to step down as Britain’s prime minister as fears mount that the UK is heading for a no-deal Brexit under her successor, Boris Johnson.

Investors have withdrawn $4.2 billion from UK equity funds since late May, according to EPFR, a data provider. Outflows since the Brexit referendum in 2016 have climbed to $29.7 billion. Luke Ellis, chief executive of Man Group, the UK-listed hedge fund manager, said investors had put the UK into the “too hard to think about basket”.

Neil Dwane, global strategist at Allianz Global Investors, said the UK stock market was “unloved, under-owned and cheap” and Mr Johnson’s positive rhetoric would fail to shift investors’ cautious stance.

“Boris must first resolve Brexit. It will always get in the way until he does,” said Mr Dwane.

UK exposure

Portfolio managers running 250 global equity funds with $450 billion in assets have also reduced their UK exposure, with the average holding sinking to 7.9 per cent, according to Copley Fund Research.This is below the trough reached immediately after the 2016 referendum and down from a peak of 11.5 per cent in 2011 when Copley started the survey. As much as $2 billion has been withdrawn from the UK by this group of managers over the past six months.

“We’re seeing a marked shift out of Britain and into mainland Europe by international fund managers,” said Steven Holden, chief executive of Copley Fund Research.The FTSE All-Share index has risen 20.5 per cent since the eve of the referendum in 2016, helped by sterling weakness to dollar earnings for many large international companies that are listed on the London market.

Threat

Arnab Das, a global market strategist at Invesco, said that the threat of a no-deal Brexit was increasingly being priced in by investors. “The political dynamics have shifted from trying to negotiate unworkable compromises with the EU and within the UK parliament towards a fundamental reboot. That may lead to no-deal but there is also a significantly increased chance that there will finally be some sort of resolution to the thorny issue of Brexit itself,” said Mr Das.

No-deal fears also hit investor appetite for UK property funds, which suffered net withdrawals of £410 million in July – their highest monthly outflows since January – according to Morningstar.

“With the appointment of Boris Johnson as prime minister, a hard Brexit became increasingly likely and investors further shunned UK property assets,” said Bhavik Parekh, associate analyst for manager research at Morningstar. Property funds, which invest heavily in commercial real estate, the value of which is sensitive to changes in the macro environment, have been hit by the Brexit unease.

Investors pulled £1.9 billion from the products over the 12 months to the end of July, with outflows peaking around times of particular uncertainty, such as the original March 29 Brexit deadline.Heavy withdrawals this year prompted the UK regulator to demand daily updates from asset managers amid fears of a potential liquidity crunch similar to that which prompted property funds to suspend trading in the months after the 2016 Brexit vote. – Copyright The Financial Times Limited 2019.