by Charlotte Morgan 23rd October, 2019
2 min read

Weak pound and economic uncertainty: an opportunity for US investors?

With uncertainty over Brexit continuing to hit investor confidence and the “Pound on a rollercoaster” in the currency markets, there has been a noticeable slowdown in deal volume in the domestic M&A market whilst people wait for a resolution to the current turmoil.

The unpopularity and pessimism towards the UK economy has been reflected in the underperformance of the UK equity market since the EU referendum in 2016.

Additionally, foreign investment into the UK has been falling amid Brexit uncertainty. In 2017, foreign direct investment (FDI) into the UK stood at £92.4 billion, down from £192 billion in 2016.

Considering all this, one could argue that there’s never been a worse time to invest in the UK, but for those not averse to taking a risk or two, could this actually be the opportunity of a lifetime to snap up cheap assets?

A “Brexit discount”?

Falling confidence in UK investments may in fact be an opportunity for overseas investors, who can snap up cheap assets with a “Brexit discount”.

A resolution to the Brexit debate – even a no-deal solution – will bring about increased certainty regarding investments and should bring investors back.

This suggests that the current situation may be the bottom of the market – an excellent entry point for investors to buy into businesses with strong post-Brexit growth potential.

Additionally, the plummeting pound is good news for many investors as it boosts dividend payments from companies who earn some, or all, of their revenue in Dollars.

US investment

Whilst the situation has deterred many investors, many in the US have already capitalised on the opportunity.

The majority of American FDI in the UK is directed towards energy and waste sectors, trade and repair, metal and machinery products, financial services and administrative and support services-related activities.

Additionally, there has been significant levels of investment in the UK tech sector this year alone.

In the first seven months of this year, UK tech companies secured £5.5bn in foreign investment, with much of this originating from the US and Asia.

Weak pound and economic uncertainty: an opportunity?

For those with a strong constitution, the current situation should not be seen solely as a risk by investors, but also as an opportunity.

It should be kept in mind that the British economy is resilient, many expect UK business investment to pick up in the coming years and with record levels of dry powder around there will be a rush for assets once the UK’s path becomes clearer.

Whatever the outcome, there are undoubtedly sectors that will see growth in any Brexit scenario.

The UK continues to lead in various fields – including renewable energy, aerospace, Fintech, AI, amongst others – and investors risk losing out on this opportunity by holding back now.

Whilst the picture from within the UK may look a little bleak, for savvy US-based investors with strong Dollars burning holes in their pockets, this could be the opportunity of a lifetime.

See more articles by Charlotte Morgan