Even small changes in the economy can influence investment markets. Right now, there remains uncertainty over the impact of Coronavirus and Brexit. What actions can investors take in such circumstances?
We may be mid-way through September, but the three and a half months left of 2020 continue to feel unclear. At present, the UK and EU are continuing to negotiate with the intention of securing a free trade deal. However, with tensions rising, and key disagreements remaining unresolved, investors need to look seriously at the possibility of a no deal Brexit. If the UK and European Union are unable to agree a deal, the two entities will trade under World Trade Organization (WTO) rules from January 1st, 2021.
At the same time, uncertainty continues around the health of the economy, as the Coronavirus pandemic continues. With the number of Covid-19 cases increasing through early September, it can’t be ruled out that further restrictions will be introduced to prevent the spread of the virus. Already, the UK has moved to outlaw gatherings of more than six people. Any further regulations could have a knock-on effect for the UK economy.
In a recent article for the Financial Times, journalist Mary McDougall reported on some of the possible outcomes of Brexit on investment markets. McDougall says that in a no deal situation, analysts expect disruption at the UK border, which could see the value of Sterling go down, in turn leading to higher interest rates. Inflation-protected bonds could be a good value option, suggests Tilney’s Head of Multi-Asset Funds, Ben Seager-Scott.
Another way of addressing a no deal Brexit could be to invest in non-European related currencies, for example the US Dollar, to avoid any fall out which is likely to impact Sterling and the Euro. Currency exchange rates, as always, are expected to play a big role in investment yields, so investors are advised to be aware of currency fluctuations when planning ahead.
As per McDougall’s article, experts are also warning that “investors should be wary of seeing things in too simplistic a fashion”. Brexit is one factor, but Coronavirus is another. Previously stable investments could be more vulnerable, particularly considering the spread of the virus, as medical experts warn that we may be at the start of a second wave of Covid-19. Now isn’t a good time to oversimplify investment markets, as uncertainty is a major factor.
However, should this uncertainty cause concern among investors? The American entrepreneur Victor Kaim once argued that “Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.” As such, entrepreneurs and investors need to recognise that 2020 is a year of both obstacles and opportunities, and need to plan accordingly.
McDougall concludes her article by suggesting that investors should be analytical in their approach to investing, and should undertake a process of reviewing, checking and analysing the necessary information before making final investment decisions. Although uncertainty continues to be an issue, there are opportunities for investors who take the time to consider how the markets are being affected by ongoing situations. Although 2020 has put up plenty of obstacles, investors still have room to find the right opportunities.