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Is Brexit stopping your clients from investing?

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The uncertainty surrounding the outcome of the election and Brexit mean UK clients are not committing to investment. But is this a problem with our own domestic sentiment and one which we can see beyond if we consider ourselves to be global investors? Let us consider how things look from a distant perspective, as if we were planning our retirement in East Asia.

Exit the Dragon – Population explosion has ended

A life time ago, in 1955, the population of East Asia, which includes China, Japan, but excludes India, Indo-China and Indonesia, made up 29% of the world’s population. It was overwhelmingly (80%) agricultural and with appalling rates of infant and premature mortality. The median age of the population was just 22. Since then the global population has more than doubled to 7.8bn but three significant changes have affected population numbers in East Asia. First, its people have moved to the city, and now 63% live in town.  Second, life expectancy has nearly doubled, with the median age rising to 38, only just behind ours in the UK which is 40. Thirdly, the birth rate has collapsed, to below our level of growth in the UK. The impact of this is that today the region makes up 21% of humanity, a significant relative decline.

Graph demonstrating the Eastern Asia population growth between 1950 and 2019
Source: Worldometers

Sour and Sweet – Economic rebound

However, over the last 65 years East Asia’s economic progress has been extraordinary. Japan was devastated by the Second World War. China suffered invasion in the 1930s, the war itself, and a subsequent civil war which lasted into the 1950s. But today these nations, along with South Korea, account for a quarter of global GDP. In 1960 their share of global income was around 8%. So, we have an ageing population who are blessed by an enormous relative increase in their wealth. Can we trace the implications for investment of this wealth, from a UK perspective?

Graph demonstrating the change in GDP between Japan, Korea, Hong Kong and China from 1960 to present

Source: WorldBank.org

Hundred year old nest eggs

An ageing population will approach investment conservatively, wherever they live. They are thinking about preserving wealth, moderating risk, drawing an income, and handing wealth on to the next generation. They will be looking for stability and want to invest in regions where the rule of law and continuity are self-evident. Does that remind you of home? London, Edinburgh, or Cardiff? Perhaps more topically this week, Scunthorpe and Redcar? We do not yet know the exact fate of these flagship steelworks, their workforce and supply networks, but the interest of the Chinese Jingye private equity group is a straw in the wind, showing us that we remain an attractive place to invest.

Long term investing means a global perspective

The point, of course, is that investment sentiment always needs to be put into the context of the other key factors in price, which are liquidity and valuation. Here in the UK we are in state of uncertainty about our future, about the Union, our key trading relationships and the mechanisms of our democracy. This is affecting our objectivity and our reasoning about the timing of new investment. The instinct of retail investors here at home is to wait and see. Sadly, none of these painful domestic political and social issues are going to be neatly resolved in December 2019, and frankly the world is not massively concerned. The world is not going to wait and see. It will carry on investing for its retirement. When Ageing Asia looks at the valuations of UK assets, such as prime commercial property, they like what they see.

How global is a typical Parmenion investor?

For a balanced UK investor, their global exposure will be an important factor in their returns. Our domestic situation will be a factor too, but not the sole or even the key determinant of their outcomes. For example a Parmenion Conviction Risk Grade 5 portfolio holds 12% in global bonds, 20% in overseas equity and a further 30% of their underlying equity earnings come in from abroad via our great UK-listed businesses which think and operate globally. The portfolio has over 60% exposure to global markets therefore and its broader diversification will also offset a client’s exposure to any fallout from our domestic politics.

If we were all retiring this week in Shanghai or Tokyo or Seoul or Taipei, after a successful career and with good savings, would we stay in cash because of Brexit? We would think long term, we would think global and be investing in the market.



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