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