Article 50 - views from the UK Equities desk
Article | 29 March 2017
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As Article 50 is triggered, the road to Brexit has reached another milestone, but what does this mean for the UK equity market?
In simple terms, the UK's vote in favour of Brexit cast us into a period of high political and economic uncertainty, presenting unknowns of a scale we have not experienced in the market for some time. Since then, the UK economy has shown remarkable resilience to the challenges ahead, with fears around consumer spending, recruitment and domestic business proving largely unfounded. Consumer spending and the service sector continue to drive the UK economy, despite some decline in business investment. The jobs market remains robust, although we expect inflation to squeeze discretionary expenditure as we progress through the year. Retail sales volumes fell in January, so there is some evidence of this already and, in spite of higher inflation expectations, the BoE seems unlikely to raise interest rates in the short term.
Both the stock market and sterling moved very sharply last summer in anticipation of longer-term disruption, but we feel some of these moves have been too sharp, allowing us to reshape our portfolios in areas we perceive to be oversold. Where the market has had concerns about a stock’s domestic exposure, business conditions have often remained largely unchanged, presenting longer-term opportunities.
As the UK government begins its formal Brexit negotiations with EU members, we remain optimistic about the road ahead; we have a dynamic economy which has adapted to change before – and is now primed to adapt again to whatever change is thrown at us. Sterling will remain a key instrument to watch over the near-term, as movements in currency will continue to impact the extent of the wider market response. Political events in the United States and Europe have added an additional twist to the outlook for major global currencies, and we have observed the market thinking more carefully about currency implications.
Ultimately, we don't manage money on a three-month view or a six-month view but in the best long-term interests of our clients. We would urge investors to recognise that we will endeavour to make considered judgments on the basis of the facts as they emerge. We will not be making changes to the methodology we have used for many, many years to build our portfolios, nor departing from the processes we deploy to analyse, understand and respond to investment opportunities across UK equity markets.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Where Invesco Perpetual has expressed views and opinions, these may change.