The road to Brexit – what’s next for investors?

With the UK expected to start the process of leaving the European Union this month, we asked a panel of Schroders investment and economic experts, covering a variety of areas from European equities to real estate, what they are looking out for in the coming months.

The road to Brexit – what’s next for investors?

Azad Zangana, senior European economist at Schroders, believes the UK’s exit payment will be an issue. Commenting he said: “The triggering of Article 50 itself will largely be a non-event for investors given that it has been widely flagged for some time. However, in the near-term, an issue that could become a political hot potato is the size of the UK’s exit payment.

“Michel Barnier, the European Commission’s chief Brexit negotiator, has indicated that the UK may be asked to pay up to €60bn (£51bn or 2.7% of 2016 GDP) to cover the cost of existing commitments. Analysis conducted by the Financial Times newspaper suggests that this is an upper estimate of gross liabilities. It estimates that the final payment could be worth €20bn (£17bn or 0.9% of GDP).

“A significant political fight over the UK’s exit bill could jeopardise the chances of a favourable/friendly trade agreement at a later point. Despite the UK’s desire to negotiate a trade deal in tandem with the divorce proceedings, there is no requirement for trade to be concluded under Article 50.

“The precise proceedings and outcome of the negotiations will remain highly uncertain for some time. This is likely to keep investors on high alert for any signs of better or worse outcomes than expected. However, the negotiations themselves are unlikely to have an economic impact before Brexit actually happens.”


David Docherty, fund manager, UK equities, at Schroders said it is the two-year negotiations following the triggering of Article 50 that will have a big impact on equities.

“In market terms, the triggering of Article 50 is already well discounted and the notification itself is therefore unlikely to have an impact on UK equities,” he said. “In contrast, the two years of negotiations which follow Article 50 will have a much greater influence on UK companies and markets.

“As the bargaining continues, we expect to see recurring bouts of market volatility as investors respond to, and anticipate, evolving negotiating positions.

“We believe that the ebbs and flows of the negotiating process should throw up valuation anomalies in a number of stocks as investors attempt to identify and calibrate the implications for individual companies.

“Our bottom-up stockpicking approach should serve us well as we look to exploit these mispriced opportunities when they emerge.”


Roger Doig, analyst, European equities at Schroders, agrees: “Assuming there are no unexpected obstacles to triggering Article 50 thrown up by the House of Lords, it should be triggered by the end of March. A period of negotiation – potentially quite lengthy and quite fractious – will follow.

“In this time, UK-based banks and insurers will continue to navigate in the fog, but with the two-year exit clock ticking, their contingency planning will become more urgent.

“Demands for greater clarity about how UK-based firms can access EU markets will grow, but the government won’t be in a position to give this clarity while the exit bill remains unresolved.”


Mark Callender, head of real estate research at Schroder Real Estate, is most concerned about the impact on London. “Winning cities across the UK such as Manchester, Bristol and Leeds are likely to continue to benefit from ongoing tenant demand. These cities share the common attributes of diversification, modern infrastructure and quality of life.

“Our main concern is the impact which Brexit could have on the London office market. While London will continue to be a major hub for international business given its large pool of skilled labour and other inherent advantages (e.g. English law, time zone), there is a risk that banks and other financial services will have to switch some of their activities to the EU.

“In turn this could affect the lawyers and other professional services who work for the banks. We are also conscious that around a quarter of London’s construction workers are from other EU countries.”

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