No one would have expected this: months ago Great Britain was like an economic idiot, Brexit threatened to lead to chaos, and the Corona epidemic hit the island hard – probably in many other countries than without any fault of the government in London. But there is no more talk of this in the financial markets, and for a few weeks now investments in the kingdom have suddenly become one of the investors’ preferences again.
UK Stock Exchange? The leading index FDSE has increased by 20 per cent since November 2020 in the country like Docs or the US S&P 500. British pound? The question is, according to Bloomberg, the best performance in a basket of the 16 major currencies monitored by the financial information agency this year. Against the euro, the British currency recently released its longest profitable history since 2015. A pound is sometimes worth more than 1.16 euros – the last before the corona crash in the spring of 2020. What about the British government bonds called Guilds? The prospect of an immediate economic recovery has put pressure on bond prices in several countries in recent weeks, including the United States and Germany. In response, yields on paper soared – it was particularly strong in British bonds.
Financial markets send a clear message: they expect an economic recovery in Great Britain, which will be much faster than in other parts of Europe or anywhere else in the world.
There are several arguments for this assumption. So the uncertainty surrounding Brexit has largely diminished because it is the Prime Minister’s government Boris Johnson (56) At the end of 2020, almost at the last minute, an agreement with the European Union was finally closed. Adolf Rosenstock, economist at Mainsky Asset Management, a Frankfurt investment house, writes that the deal has disadvantages for Great Britain as well. But: “With all the negative consequences for the future of the British financial market, the uncertain years of how and when to exit the market with the Brexit deal are gone, and the conditions under which it wants to trade with countries outside the EU that are now in the hands of Great Britain are very decisive.”
Britain is vaccinating more than others
In the long run, Brexit will lead to stronger relationships with global trading partners such as China, India and the United States, as Rosenstock sums up the confidence that other investors openly share.
But what’s more important is this: Great Britain is now hiding many countries in the fight against the corona epidemic. As a reminder: First, the country is one of the worst affected by the epidemic, which is evident from the high infection rates and the above-average number of deaths. Prime Minister Johnson’s British government, which has long criticized last year for not taking decisive action against the corona virus, may be at least partly to blame.
But the tide has turned on this issue as well, with Great Britain launching a larger-scale vaccination campaign than any other EU country. Conclusion: Meanwhile, more than 20 per cent of all Britons have already received at least one vaccine – in Germany this figure is currently over 5 per cent. As measures against the third wave of the epidemic are still being discussed in this country, Boris Johnson announced a few days ago that the lockout would end and that the economy would reopen this summer. By June 21, Johnson said in a speech to Parliament that the British government wanted to remove all restrictions on corona virus infections in the UK.
Bloomberg economists have already developed what this means for the British economy. Accordingly, island companies can expect a growth turbo in the second quarter. After a 4.5 percent decline in corona-related economic output for the first three months of the year, the increase is likely to rise to 7 percent from April to June. So Bloomberg.
It goes without saying that this perspective has been well received in the financial market. “While Great Britain is one of the worst-hit countries, the rapid demographic outbreak and Prime Minister Boris Johnson’s proposed lockout exit plan will give the British economy significantly more momentum from the second quarter onwards.” “Over the past few weeks, this expectation has more than doubled the yield of the Guild, for example, the ten-year pound and the British pound have turned into one of the strongest currencies since the beginning of this year,” says Free in the manager’s rating.
The only important question is: How realistic are these opportunities really? Also: Should Great Britain Really Get Out of the Corona Crisis – How Long Should the Country Progress?
The past twelve months in infectious mode have shown that the virus – for example by mutations – can cause surprises. Long-term planning like the English until June is undoubtedly associated with a substantial element of uncertainty. In addition, other countries may achieve success in the future and reduce the gap for Great Britain or make up for it altogether.
“By the end of the summer Germany, France and Italy will be stuck on vaccine allocations, so investors will once again focus more on economic issues,” Pontlian Manager Free believes. “In particular, sluggish British exports, which have been hit by EU tariffs, and the British service sector, which is not part of the trade agreement, could further restrict energy.”
In view of the future isolation of Great Britain from the European Union, the Kingdom is facing a structural upheaval in the economy, “similar to industrialization at the beginning of the Thatcher era,” Free said.
In short, investors looking beyond the coming summer can see that the UK race has justified catching up in the financial markets over the past few weeks. For example, according to Meinsky, the London Stock Exchange is still “moderately valued” despite recent price hikes – which has long lagged behind in international competition.
To move further upwards, new arguments must be found – or harder facts instead of expectations.