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Betting On Britain

Britain’s assets are attractive from a risk-reward perspective. Despite Brexit, or because of it, investors find the economy appealing.

The United Kingdom left the European Union at the end of 2020 after years of hard negotiations. The final terms were established under severe conditions – both economic and social. The COVID-19 pandemic took its toll on all economies with no discrimination whatsoever.

Britain, therefore, found itself isolated on all fronts. On the one hand, it had no access to the single market as it used to and had to put its house in order itself. On the other hand, the pandemic posed its own challenges, far bigger in the short term than the ones posed by the divorce from the EU.

Yet, Britain moved surprisingly well. It managed to kick-start the vaccination campaign much faster than most of the other countries in the world. As such, its economy bounced back, and now, at the start of the summer, it looks in better shape than its rivals.

The economic data could not diverge. The GDP looks promising for the period ahead, the gradual reopening of the services sector is on track, and investors turn their attention to the British pound and assets once again.

Will FTSE All-Share Index Reverse Its Decade-Long Decline?

The British pound is one of the star performers of the FX dashboard this year so far. It gained against the US dollar, the euro, the Japanese yen, only to name a few of its G10 rivals.

British assets looked relatively cheap when the pound was beaten by the Brexit reaction. Investors with a long-term horizon found the opportunities in the UK market attractive and, coupled with a cheap pound, irresistible.

As such, the UK market remains one of the most active venture capital markets in Europe. In fact, it has no rival, even a few months after Brexit.

The equity market did not perform during the pandemic as it did in the United States. However, it may be that the nature of the companies that make up the FTSE all-share index is cyclical, and during a recession, it is difficult to outperform. However, now that the world sees the light at the end of the tunnel when it comes to the pandemic, cyclical stocks may come back in fashion once again.

Also, judging by the chart above, something else must have weighed on the FTSE shares in the last decade or so, not only sluggish economic growth. Talks of changing the rules for a London listing (i.e., smaller free-floats, dual-class of shares, etc.) might be just what investors need to flock into British assets.

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