It’s confirmed that British Prime Minister Theresa May will trigger Article 50 of the Treaty of Lisbon on March 29 to formally start the process of the UK’s exit from European Union – popularly called Brexit.
Now the question is what changes after that and who will get affected. Analysts have begun to examine all the dimensions of the event, which would see the UK divorcing from the grouping of 28 countries after a union of more than 40 years.
Experts from the UK say that it is too early to come any conclusion as the separation is due until at least April 2019.
Meanwhile, a new survey has pointed out that Dubai and other emerging markets will benefit as many UK businesses are eyeing expansion overseas post-Brexit.
UK businesses untouched?
Richard Buxton, head of UK equities and manager of the Old Mutual UK Alpha Fund, Old Mutual Global Investors, says that negotiations between the two sides, over the course of the next two years, are likely to be very gradual, akin to phoney war tactics.
He adds that as the negotiations would remain behind closed doors, with having very little in terms of concrete signposts to work off for the foreseeable future, “we could find ourselves in a situation where it is business as usual, thinking life goes on as normal, untroubled by the period of negotiations.”
“Consumers and businesses will continue to spend. But there will likely come a time when investors, consumers, and corporates will demand more clarity before they commit to X, Y or Z. That’s the time when we will all be forced to reassess the situation.”
Ian Ormiston, manager of the Old Mutual Europe (ex UK) Smaller Companies fund, Old Mutual Global Investor, argues that Europe’s economy and markets will carry on regardless as, on the ground, people don’t really care.
Sterling to feel the heat?
Meanwhile, Hussein Sayed Chief Market Strategist, FXTM and a regular contributor on AMEinfo says Sterling will likely be on a roller-coaster.
“Yesterday’s GBP price action suggests that triggering Article 50 seems completely priced in, and I won’t be surprised if GBPUSD shoots higher on March 29.”
“However, with the countdown set to begin on negotiating the terms of the breakup, Sterling will likely be on a roller-coaster. Today’s U.K. CPI release will remind us why BoE’s Kristin Forbes’s voted for a rate hike in last week’s meeting. Inflation is expected to shoot above the BoE’s target of 2 per cent but I don’t expect much of a reaction unless the number deviates a lot from expectations at 2.1 per cent.”
Buxton also says the main investment opportunities arising out of the momentous event likely to be sterling related.
“A scenario could easily emerge whereby, given how far sterling has fallen, any perception in the coming months of a long transitional arrangement in terms of leaving the EU could translate into a significant rally in the currency. This would obviously have implications for UK mega-caps and UK-listed dollar earners, relative to more domestic names, where a fair degree of pessimism has already been priced into valuations. Equally, shorter-term newsflow may well be sterling unfriendly; that’s going to be quite a challenge for the sterling bulls.”
Investors to flock to Dubai
Following the Brexit, many businesses in the UK will look overseas to expand and a new report suggests emerging markets will have an edge as they are becoming increasingly attractive to 63 per cent of UK businesses.
The study by Dubai Multi Commodities Centre (DMCC) shows that just under half (42 per cent) of UK businesses have more appetite for overseas expansion in the post-Brexit and Trump administration era.
More interestingly, a staggering 75 per cent of them are eyeing Dubai as a possible overseas location to expand into, according to the figures from DMCC. Meanwhile, another 40 per cent of companies who are still undecided would consider having a presence in the Middle East if they choose to expand overseas.
The top reasons for UK businesses eyeing overseas expansion include:
- Emerging markets are becoming increasingly attractive (63 per cent)
- There is a growing business need for a global presence (47 per cent)
- The availability and wealth of overseas talent (44 per cent)
- Too much uncertainty in the markets with the UK no longer being an attractive option (36 per cent).