Sterling is set to remain low for a long time, as major investment managers see no purpose behind the money to recuperate in the years to come.
A weak pound may be good for exports – however, the effect is coming through gradually – yet implies the current surge in inflation as imported merchandise turn out to be more costly will likewise not be unwound.
Analysts at Northern Trust Asset Management, which takes care of almost $1 trillion of assets for investors, made their estimates for worldwide trends throughout the next five years.
“We are not necessarily expecting a significantly appreciative pound,” said Wayne Bowers, the US firm’s chief executive and chief investment officer for the European, African and Asia-Pacific regions.
“In the negotiation itself, we think the pound will be under pressure. It is very difficult to see in the next couple of years any reason why you would want to build a positive position in the pound,” he said, predicting the currency will follow a trajectory that is “flat to down”.
He thinks this should have some positive effects for the economy, and that as a result, investors will not avoid the UK.
“I think that has certainly protected and helped growth within the UK,” he said, praising British companies for being particularly innovative, seeking new markets around the globe in sectors from education and finance to engineering and medical science.
“There are reasons why you’d want to own UK stocks – you want to take advantage of export-driven growth, the level of IP created in the UK, the low level of corporation tax rates, the re-domiciliation of corporate activity into the UK which we think will continue.”
Asset managers usually just announce short-term forecasts. However, the standpoint from Northern Trust tries to foresee huge trends throughout the next five years.
Its asset administration staff have likewise observed a sharp rise in the number of huge worldwide investors requesting their UK assets to be ring-fenced from their other European ventures.
Between 30pc and 40pc of the investors, prevalently major global players like sovereign wealth funds, have modified their portfolios so they can see the UK component clearly, recognising Britain’s split with the European Union.
“That doesn’t necessarily mean they are going to reduce it, but it recognises that they may want to either increase or decrease [asset allocation] without impacting their broader European exposure,” said Mr Bowers.
“We cannot extrapolate that the next move would be out of the UK, as there are attractive reasons why you’d want to own UK stock.”
He noted that the asset manager saw similar moves after the financial crisis when investors were careful about holding assets in financial firms.
Investors sold off their holdings in finance organisations, however later purchased again into the stocks and securities and have now refused them into their portfolios.