Hardly anyone would have expected that: months ago Great Britain was in the world like the economic idiot, Brexit threatened to lead to chaos, and the corona pandemic had hit the island harder – probably not entirely through no fault of the government in London than many other countries. But there is no longer any talk of this in the financial markets, and for a few weeks now investments in the kingdom have suddenly been among the favorites of investors again.
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The UK stock market? The leading index FTSE has risen by around 20 percent since November 2020, similar to the Dax in this country or the S&P 500 in the USA. The British pound? The question is how long not and, according to Blomberg, this year the best performer in a basket of 16 major currencies that the financial information agency is monitoring. Against the euro, the British currency recently posted the longest profitable history since 2015. A pound was at times worth more than 1.16 euros – that was last before the Corona crash in spring 2020. And what about the British government bonds, the so-called gilts? The hope of an imminent economic recovery has put bond prices in many countries under pressure in recent weeks, including the USA and Germany. In return, the yields on the paper rose – and that happened particularly strongly on British bonds.
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The financial markets are sending a clear message: They are expecting an economic recovery in Great Britain, which will be much faster than in the rest of Europe or anywhere else in the world.
There are several arguments for this assumption. So the uncertainty surrounding Brexit has largely subsided 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 wrapped up. The pact also has disadvantages for Great Britain, writes Adolf Rosenstock, an economist from the Frankfurt investment house MainSky Asset Management, in an assessment. But: “With all the negative consequences for the future of the British financial market, the fact that with the Brexit deal the years of uncertainty about how and when to exit the market has disappeared and it is now in the hands of Great Britain will be much more decisive has the conditions under which it wants to trade with countries outside the European Union. “
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Britons vaccinate better than others
In the long term, as Rosenstock sums up a hope that other investors apparently share, Brexit could lead to stronger relationships with global trading partners such as China, India and the USA.
But what is possibly even more important: Great Britain is now overshadowing many other countries in the fight against the corona pandemic. As a reminder: At first, the country was one of those who was particularly hard hit by the pandemic, which was evident from the high infection rates and above-average numbers of deaths, for example. The British government of Prime Minister Johnson, who critics last year long accused of not taking decisive enough action against the corona virus, was possibly at least partly responsible.
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But the tide has also turned on this issue, which is mainly due to the fact that Great Britain started a large-scale vaccination campaign much earlier than the countries of the EU. The result: In the meantime, more than 20 percent of all British people have already received at least one vaccination dose – in Germany this value is currently a little more than 5 percent. And while possible measures against a third wave of the pandemic are still being discussed in this country, a few days ago Boris Johnson announced that the lockdown would end and the economy would reopen in the summer of this year. By June 21, Johnson said in a speech in Parliament, the British government wants to lift all restrictions on the coronavirus pandemic in England.
Bloomberg economists have already worked out what this could mean for the British economy. Accordingly, companies on the island can almost expect a growth turbo in the second quarter. After a corona-related decline in economic output of 4.5 percent is expected for the first three months of the year, the increase from April to June could jump back to 7 percent, so Bloomberg.
The uncertainty remains
It goes without saying that this perspective is well received in the financial market. “Even if Great Britain is one of the most severely affected countries in the pandemic, the faster immunization of the population and the lockdown exit plan presented by Prime Minister Boris Johnson will give the British economy significantly more momentum from the second quarter compared to the euro zone,” also expects Tobias Frei, portfolio manager at the investment house Bantleon. “In the past few weeks, this expectation drove up gilt yields twice as much as, for example, ten-year Bunds and made the British pound one of the strongest currencies since the beginning of the year,” says Frei in an assessment for manager magazin.
The only question that matters is: how realistic are these prospects really? And: Should Great Britain actually come out of the Corona crisis with such a head start – how long will the country continue to be ahead?
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The past twelve months in pandemic mode have shown that the virus – for example through mutations – can cause surprises. Long-term planning like that of the British up to June is therefore undoubtedly associated with a considerable element of uncertainty. In addition, other countries will probably also achieve success in the near future and possibly reduce the gap to Great Britain or make up for it completely.
“Germany, France and Italy will have caught up in the vaccination quota by the end of the summer, so that investors will again focus more on economic issues,” believes Bantleon manager Frei. “In particular, the sluggish British exports, which are suffering from EU customs formalities, as well as the British service sector, which is not part of the trade agreement, could limit further upward potential.”
In view of the future isolation of Great Britain from the EU, the kingdom is also facing a structural upheaval in the economy, “similar to the de-industrialization at the beginning of the Thatcher era,” said Frei.
In short, investors looking beyond the coming summer may see that the UK’s race to catch up in the financial markets over the past few weeks may have been justified. According to MainSky, for example, the London stock market is still “moderately valued” despite the recent price increases – it had lagged behind international competition for a long time.
For further leaps upwards, new arguments should be found – or hard facts instead of expectations.
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