No-deal Brexit worries lead to UK equity outflows

Dec 17, 2018
But caution offered in interpreting numbers

Rising no-deal Brexit worries in the UK have resulted in investors exiting UK equity funds in record numbers.

Investors have pulled a whopping $9.8 bn from UK equity funds in the year to date, Bank of America Merrill Lynch (BofAML) data reveals.

And data from Morningstar reveals funds investing in UK companies have posted outflows of €16.7 bn ($19 bn) between June 1, 2016 and the end of October 2018. This comes after other data also revealed this trend

But Morningstar offers caution in interpreting the numbers, highlighting that fund outflows represent only a small fraction of the €528 bn invested in UK equity funds at the start of June 2016.

Dan Kemp, chief investment officer at Morningstar Investment Management Europe, says in a statement: ‘Brexit is difficult to analyze because of the indirect and tenuous connections it has on investment fundamentals.

‘We believe that when investors depart from long-term, fundamentally sound investment analysis, they can drift dangerously into speculation. The first thing to acknowledge about the fundamentals is that the UK economy is not the UK equity market.

‘We do not need to predict the UK economy to know what might happen to UK stocks. The UK is unloved, reasonably cheap and fundamentally healthy.’

Noting the numbers in terms of what we have learned in response to trends in 2018, BofAML observes: ‘Investors have no satisfactory answers to the existential questions of: if not stocks, then what? If not tech, what? If not the US dollar, what?’

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