Investment Update: Implications of UK-EU trade deal for investors

Investment Update: Implications of UK-EU trade deal for investors

4th January 2021

The UK and the EU agreed a post-Brexit trade deal at the eleventh hour. As many economists and investors had anticipated, a ‘no deal’ may well have been significantly detrimental to both sides. So, no matter how ‘light’ it feels, we have a deal, nonetheless.

Even though for many the deal only covers the bare minimum, a deal will be good news for investors in UK equities and, coupled with the cautious optimism around the Covid-19 vaccine rollout, we have already seen this translate to markets. Since the first signal of a deal was announced, the FTSE 100 is up 2.4% (SOURCE: Bloomberg, from 21st December 2020 to 4th January 2021).

Companies relying on domestic economic activities should benefit the most. We are also more likely to see Sterling appreciate somewhat, which in turn should make global investors view the UK market as investable without having the ‘Deal / No-Deal’ conversation looming over us. So, a deal is undoubtedly good news for investors in the UK, but the focus in the short term will return to how we navigate the Covid-19 pandemic.

Longer term, we still need more clarity on the implication of this new relationship with the EU, for example for financial services and air travel, but this deal gives us a degree of additional certainty that the valuation of UK equities will begin to close in on their discount.

For clients who are invested in Omnis Investments’ funds through either the Omnis Model Portfolio Service or the Graphene Portfolios, this is undoubtedly good news given that portfolios have a high weighting towards UK Equities at a strategic level. Furthermore, within the Omnis Model Portfolio Service, where we are able to tactically amend the asset allocation, we currently have an overweight exposure to UK equities.

Rohit Vaswani
Client Portfolio Manager

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.