United Kingdom, a Singapore by the Thames?

Olivier de Berranger (La Financière de l’Échiquier) | “Let’s have fun”. Have the words of President Charles de Gaulle been prophetic? He was against the United Kingdom’s entry into the Common Market in 1963… More than 50 years later, although the tribulations of Brexit may cause amusement or disappointment, the truth is that they have been poisoning investors’ lives for more than three years, by separating them from British stocks. However, the outcome of this endless soap opera could well change the situation.

Even if its weight has been reduced in the indexes – a quarter of the MSCI currently compared to 33% before June 2016 -, we must not forget that the British market is still by far the largest in Europe. Its advantages? Its depth and its great diversification. Private equity funds are not mistaken, as they have multiplied their purchases in the last six months. As excellent business examples, the manufacturer of aeronautical equipment Cobham, the Greene King brewing group, through Merlin Entertainment.

Due to its balance of payments deficit (5.6% of GDP), the UK economy also resembles that of some emerging countries. And, throughout history, there are many examples – Asia in 1997, Russia in 1998, Brazil in 2002 – that show that crises in countries with imbalances can be very fruitful. One luck that British stocks could soon run, with the infra exposure of investors to this class of assets at record levels and the discount of their valuation with respect to world stocks at levels in the late 1980s. Brexit could be a good historical opportunity for the UK to redefine its economic model and boost its growth potential (a Singapore alongside the Thames?). There is no doubt that the conservative government will know how to adopt favorable reforms for business investment.

Prudence is crucial. The United Kingdom is also making great progress in the digitalization of its economy, which mainly affects two sectors historically favored by investors: banking services and distribution. If Brexit is resolved, these sectors could Although for some the list of concerns is long, the list of possibilities is extended for the brave, since the FTSE 250 index is a nursery of opportunities.