UK Election Doesn’t Pre-Empt Fears of “Hard” Brexit

Stockholm (HedgeNordic) – UK Prime Minister Theresa May’s decision Tuesday to call a snap General Election on June 8 is “not without risk,” according to Mike Amey, head of sterling portfolio management at PIMCO. However, the prospects of a victory for Labour and its leader Jeremy Corbyn are low, with a 20-point lead in the polls for the Conservatives who should, Amey thinks, be able to increase their parliamentary majority, giving the government more room for manoeuvre during Brexit negotiations.

UK PM Theresa May

This could insulate the government from far right elements, allowing it to plot a less confrontational approach to exiting the EU, lowering the risk of a very disruptive Brexit, Amey said. And “[w]hilst the initial market reaction as been muted this should reduce the risk premium in UK assets and put upwards pressure on UK gilt yields and potentially support the British pound.”

Meanwhile, according to research by asset management group Managing Partners Group, over seven in ten (73%) of institutional investors still believe Brexit will be “hard”, including 29% who believe it will be “very hard”. 82% also believe the number of UK-based financial services firms seeking to establish subsidiaries in the EU will increase over the next three years as a result of Brexit.

44% hold fast to the belief that UK asset managers will have the opportunity to passport their funds into the EU following Brexit, while 30% remain sceptical of this.

“Although a sizeable minority in our survey believe UK asset managers will be able to passport their funds in the EU after Brexit I think this will be unlikely – current members of the European Economic Area such as Switzerland, Liechtenstein and Norway do not have this privilege,” said Jeremy Leach, CEO at MPG.

MPG will announce the full findings of its research at the Finance Malta 10^th Annual Conference on 17-18 May 2017. The firm believes Malta will be one of the biggest beneficiaries of Brexit, due to its EU membership, its efficient regulatory and legal environment and its highly educated, English-speaking workforce.

“[M]any asset managers and other UK financial services companies will look to establish a secondary entity somewhere in Europe post-Brexit and Malta should certainly be on the list of serious options,” Mr Leach said.

The MPG survey also showed that respondents believe the most important considerations for UK companies looking to set up operations elsewhere are a comprehensive legal and regulatory framework (78%), the tax regime (52%) and economic stability (42%). “Malta is exemplary under all of these criteria,” Leach added.

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