The Brexit clock is ticking and economic scaremongering is gathering pace, but is it time to hedge your bets rather than hit the panic button? Roger Williams gives his view
MANY EXPERTS AGREE THAT BREXIT’S IMMEDIATE EFFECT WILL WEAKEN THE UK’s economy from March 2019 regardless of whether a trade deal is negotiated with the European Union or not. There is less agreement about the long-term impact. You should not rely on the majority view of experts; too often it has proved wrong. However, it is likely that the continual expression of adverse predictions will impact expectations and these expectations will move markets and this is likely before Brexit is a reality.
Now you will need to prepare for possible changes in exchange rates, travel, duties and the impact they can have on your investments. If you have your own business, be it a manufacturer or distributor, you will need to consider possible impacts on the trade environment for your company’s goods and services. You and your business will need to try to benefit from changes that can occur from expectations. This can be complex but sometimes it may be possible to use a simple strategy to benefit.
The buzzword surrounding Brexit is ‘uncertainty’. Currently, the only certainty is that markets will be volatile. Expectations leading up to the Brexit vote were that the UK would remain; indeed, the majority of experts predicted a remain vote. They similarly failed to predict Trump’s presidency. One punter bagged almost £14,000 betting on a Trump/Brexit double, and in this environment various strategies and actions will be essential – not just to try to mitigate damage to your assets and income, but also to try and benefit from it.
Turning first to your company’s trade, hedging may help in the short to medium term but expert advice is required to avoid the pitfalls that may be inherent. If you are a recipient of euros, perhaps you will consider the risk of a fall in the euro against sterling a risk worth taking. The reverse, however, you might consider hedging. You do not have to hedge 100 per cent of your annual sterling payments to EU organisations, for instance. You can hedge a proportion and only look to deal with a period of time post-Brexit. You can have contracts that expire to match your forecast payments. I find you must make up your mind with regard to the proportion of your payments and months of scheduled payments, otherwise those who make foreign exchange futures their business can lead you into greater risk and volume than you are planning to take.
On a different tack, there are other things that may be considered. For instance, should you be trading with the EU, then the acquisition of virtual residency or e-residency may help. On 1 December 2017, Estonia made this available. While it will have no benefit from a tax residence perspective, it does give residency which is acceptable to a bank, and such an account in Estonia, trading in euros, may confer a favourable methodology for making and receiving payments. Brexit may impact funds transfers, if only in terms of documentation, timing, or worse still, cost. The e-residency will grant access to company formation in Estonia and the e-resident gets a smart card which they can use to sign documents. It may be a neat solution to a potential Brexit problem at what appears a reasonable cost. It does however, involve either a trip to Tallinn or to an Estonian embassy. All details and forms are available on-line.
Property assets, both personal and corporate, will be impacted by Brexit. The first and obvious negative impact on UK commercial property and perhaps rental housing, could be reduced demand in the UK. With this in mind, in this run up period to Brexit, if renting a UK property, perhaps it would be conservative to avoid changing a lease and agreeing to an increased rent. It would be better to wait until after Brexit. If you are the landlord, perhaps the opposite is true. If it is time to renegotiate rent on a UK resident property then do so now, before Brexit.
In relation to commercial or residential property in the EU, it is much more complex. For instance, Italian Banks have an unmanageable debt problem. This, combined with the withdrawal of the UK from the EU, could trigger significant economic problems for Italy. How you deal with property owned and let in Italy, is likely to be impacted more by the demise of the Italian banks upon the tenant than Brexit having an impact itself.
The only advice that would seem sensible here is look at the fragile economies in the EU, Italy and Greece being the obvious examples. If you have property which is let in these countries, more detailed credit analysis would be sensible and it needs to be kept up to date. Property that is let out should be reviewed. If there is an associated mortgage, the repayment and interest of which relies on rental income, consider whether the servicing of this debt can withstand both a loss of the tenant(s) and/or a reduction in the value of sterling. If you are considering selling an EU-based property in Italy or Greece, bring that decision forward as the complexity of risks would make this a sensible move.
Brexit could have an impact on one’s ability to travel with ease. There is little one can do to avoid this except, if you are a frequent flier then do consider renewing any visas just before Brexit so you have the maximum amount of time to have the potential for less hassle when travelling.
Moving goods between the UK and the EU could become more difficult after Brexit. There are likely to be more checks on goods passing through airports and ports on leaving the customs union. These are almost certain to mean it will take longer to get product to customers. Now is a good time to look at the terms of carriage for products shipped to the EU or for goods imported. Transportation and thereby carriage is likely to increase and price lists need to be reviewed. Placing the risk and burden of these increases, in time and cost, on the customers or not, needs to be considered.
Should passporting rights not be agreed with the EU, UK companies may need to review their insurance and where the risk is placed. Review your insurance arrangements now and be prepared to shift insurers if better quotes are available. Try to get your policies to straddle Brexit. There is no way to insulate yourself against the changes that, with certainty, will occur. Brexit is complex and you can benefit from volatility if you have a good broker and/or you are a sophisticated trader. Note I say trader rather than investor.
You cannot insulate yourself but hedging, reviewing your position and that of your company can help you do something that is best completed before Brexit. Don’t let Brexit happen to you. Anticipate its likely impact and draw up a plan for a range of possibilities before the clock runs out.