Brexit’s Safe Haven Is A Dangerous Place

Gilts are on a tear as investors escape U.K. stocks and the pound. But a no-deal Brexit or a Corbyn government would soon change their status.

(Source: By Mark Gilbert  and Marcus Ashworth (via Bloomberg.com) )

British investors have been fleeing their domestic stock market in droves all year, and everyone and their dog lined up to sell sterling on Thursday as the tally of resignations from Theresa May’s Brexit-plagued administration mounted. Gilts have become the haven of choice for those unable or unwilling to scrap all their U.K. exposure. But that search for safety could backfire if the political chaos brings down Prime Minister Theresa May.

The real and present danger to her and her draft Brexit agreement increases the risk of Britain crashing out of the European Union without a deal. That wouldn’t be good for anybody, including U.K. sovereign bondholders.

Because of all of the political uncertainty, British equities — particularly those lacking the buffer of big exports to cushion the blow — will no doubt continue to suffer.

Market Laggard

U.K. stocks have performed worse than their peers

Indeed, domestic investors who’ve bailed out of British stocks this year have dodged a bullet.

Love Don’t Live Here Any More

U.K. investors continue to favor overseas equity markets

While Brexit isn’t done yet, it’s already having direct economic effects, including making British consumers increasingly nervous. Retail sales fell by 0.5 percent last month, figures published on Thursday show, contradicting economists’ expectations for a gain of 0.2 percent. So it’s no surprise that the pound is suffering too against the dollar. It was nursing its biggest one-day drop in more than two years at its nadir on Thursday, leaving it looking more like an emerging-market currency.

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