Ignore the UK Economy and Focus on Fundamentals

Many were expecting the economy to hit the wall in the aftermath of Brexit, and have been pleasantly surprised - but investors should focus on fundamentals

Dan Kemp 26 May, 2017 | 3:08PM
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With the triggering of Brexit already more than 50 days old, the two-year window to officially divorce from the European Union feels more akin to a Usain Bolt sprint than a Mo Farah jog. 

As sprinting tends to be more exciting than the longer-distance varieties, it is understandable that the attention of market participants appears to be exclusively focused on the Brexit “event”. Yet, in reality, returns to investors will be driven by underlying fundamentals over a longer time horizon and it seems irrational to expect 65 million people to slump to their knees before they cross the finish line. Or to put it another way, we must adopt the attitude of the marathon runner rather than the sprinter.

As any experienced marathon runner will attest, it is the consistent maintenance of energy levels that gets the best time. Both the government, via fiscal measures, and the Bank of England, via monetary measures, will have a big role to play in this respect, as they want to keep the British population optimistic enough that they can see the big picture but not so overly optimistic that they spend all their fuel. While in a marathon we call it “hitting the wall”, in economic terms we call it a “recession”.

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About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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