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Weak Pound Attracts Overseas Investors

Weak Pound Attracts Overseas Investors “like Bees to a Honey Pot”

With the weak pound tumbling after the Brexit vote, Sterling has attracted serious investors throughout the world to dig deep and make substantial returns.
 
Financial analysts predict a saving of 10% which will enable foreign investors to save 100,000 on a 1 million pound house in London due to the decline of sterling.
 
Investment Managers have reported an increase in enquiries from overseas investors wanting to invest in sterling linked assets, whilst commercial property investment managers have also reported an increase in enquiries from overseas. With the current all time low of the value of Sterling,  the extremely favourable exchange rate presents foreign investors with a much better investment proposition.
However with the uncertainty of the Brexit vote outcome, City analysts predict many are likely to sit on capital until the political and economic uncertainty is resolved .
 
Sovereign wealth funds such as Norway’s Government pension fund, Global and Singapore’s GIC have  previously been big investors in UK real estate, and could deploy more capital into the market to increase their exposure while the pound is weak.
 
Other investors, particularly in the Middle East, could also jump at the opportunity to invest in real estate at a much reduced cost, although because the rent will also be paid in Sterling, yields are less likely to increase in a meaningful way.
 
GIC are understood to be focusing on investing in student accommodation, as they consider this as low risk due to the high demand. Commercial property such as offices are not expected to be as popular due to the Brexit vote as there is the threat of financial institutions leaving the UK for new locations within the EU, which hits confidence within the market.
 
According to research company Preqin, the proportion of sovereign wealth funds investing in real estate had risen to 62% in 2016. This compares to 2014 54% invested in real estate, while in 2013 it was 59%.
 

Andrew Parry, Head of Equities at Hermes Investment Management, warned that the market uncertainty was outweighing the desire to exploit the favourable exchange rates. “The fall in the value of sterling should be good for foreign director investment (FDI),” he said, “but not many people are willing to make early commitments to long-term investments until they’ve seen how the political and economic landscape shapes up.

“Sterling is cheaper and markets are cheaper, but that’s outweighed by the rampant uncertainty.”

Foreign investors could also look to invest in the FTSE 100, which is up around 2pc on pre-referendum levels, as blue-chip companies trading outside of the UK get a boost from weaker Aterling. There is also likely to be more merger and acquisition activity as investors look to snap up smaller companies at a low point in the cycle.

Richard Dunbar, deputy head of global strategy at Aberdeen Asset Management, said: “The weakness of sterling may well provide opportunities for those companies to look at more merger and acquisition activity in the UK, but there is higher risk and uncertainty at this time.”

According to analysts, the pound could fall as low as $1.15 by the end of the year, and Azad Zangana, senior European economist at Schroders, said investors are holding off in the hope that the exchange rate will become even more favourable to them.

“We’ve seen some early interest in sterling assets but most investors will wait until the pound falls further,” he said, adding that any further decline in the value of the pound would devalue investments made now.

“There’s money in the sidelines, we know that, and we can see that more enquiries are being made, but investors are holding back for now,” Mr Zangana added.

Julian Chillingworth, chief investment officer at Rathbones, said foreign businesses would want to have “some certainty about the political situation” before investing further.

“The fall of sterling could attract some merger and acquisition activity and some buying of trophy assets in the property world in the fullness of time,” he said.

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