Nir Sadeh, Head of Private Banking at The Bank of NT Butterfield & Son Limited provides his views on whether Brexit & COVID is threatening the UK’s leading investment destination position.
Throughout 2020, wealth managers have been actively seeking safe investment opportunities amid unprecedentedly high levels of market uncertainty.
COVID-19 has resulted in declining productivity, employment levels and GDP across the world, culminating in major losses across both established and emerging markets. Jurisdictions that can offer stability and a diverse set of well-positioned assets, therefore, are in high demand.
To that end, Butterfield has been monitoring the performance of different market jurisdictions throughout the pandemic. Given how relevant the pandemic continues to be regarding developing market trends, we have been assessing different states’ containment policies to provide insight into overall investor confidence within these jurisdictions.
The UK is of notable interest in this regard. With a rich history of political stability and a prudent judicial framework, coupled with easy access to multifarious investment opportunities, the level of investment being directed towards the UK has been remained high in 2020.
KPMG recorded a 53% increase in venture capital funding into UK scale-ups in Q1 2020, equivalent to an additional £2.6 billion. Additionally, estate agency Knight Frank reported that £3.2 billion was invested into British commercial real estate in the first eight months of 2020, higher than any other city on the planet.
The UK’s long-term forecast
Spanning private businesses to bricks and mortar, the above figures suggest that investors remain optimistic about the UK’s investment prospects for the foreseeable future. However, there are two important upcoming developments that will determine whether the UK can sustain its reputation for financial prudence when it comes to wealth management.
The first is the ongoing negotiations regarding Brexit. While it may be easy to forget amidst a global pandemic, the UK is destined to finally fully withdraw from the single market at the end of 2020, when the transition period agreed upon in January comes to an end.
The transition period was intended to allow the UK and EU to properly negotiate a trading relationship looking forward. Talks, though, have made little progress. The UK recently made the bold step of tabling domestic legislation that would allow it to renege on many of the rules agreed upon with the EU at the beginning of the transition period; something that has stirred up a heated debate in Westminster.
The government should prioritise making progress with their EU-UK negotiations to offer assurance to investors and wealth managers. Doing so would help ensure no-one’s assets see an immediate devaluation due to political factors.
The second, equally important factor that may determine the UK’s future investment viability is its government’s future handling of the COVID-19 epidemic. Recently rising COVID-19 case numbers, along with unfavourable international comparisons and successive policy U-turns, have threatened to undermine confidence in the UK government’s epidemiological strategy.
If investors fear a sudden devaluation of their assets due to a second lockdown, itself the result of government mismanagement, they may well seek investment opportunities elsewhere. Additionally, the UK must implement policies designed to prevent economic stagnation and instigate a post-pandemic economic recovery sooner, rather than later.
Thus far, policies like the stamp duty land tax (SDLT) holiday have been a measured success in instigating a minor economic recovery, with growth of 6.6% measured in July 2020. Yet it still remains to be seen whether this momentum can be maintained.
I, personally, believe that the UK is well placed to overcome the challenges emanating from both Brexit and COVID-19. That is not to say uncertainty will not continue in the short-term, but throughout history, the UK has proved itself as a resilient and safe investment destination, able to quickly rebound from periods of volatility and decline. This reason, among others, is why the UK will almost certainly remain at the top of the list for wealth managers for the foreseeable future.
This guest article was written by Nir Sadeh, SVP, Head of Private Banking, Butterfield.
Nir Sadeh is the Senior Vice President and Head of Private Banking at The Bank of NT Butterfield & Son Limited (headquartered in Bermuda with operations in ten jurisdictions). Nir Sadeh also leads Butterfield’s International Wealth Banking unit, which provides bespoke banking services to international families with interests in multiple jurisdictions.
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