The Brexit referendum was years ago now, but its outcome is only just being put into practice. The UK has now left the EU, and the transition period is over. The country is currently operating under a new trade agreement agreed at the eleventh hour in 2020. Here, we look at how that trade agreement may affect your investment activities.
Fundamental changes that Brexit has on your investments
The Brexit trade agreement has a practical implication for your investments and for how you invest. When Britain was part of the EU, investors could trade financial products freely. Trade between countries could continue despite countries having different financial laws and regulations. Like other EU states, Britain made use of the ‘passporting’ directives. Passporting allowed that ‘a firm authorised in one Member State would be able to operate in another without having to seek new authorisation.’
Britain lost such rights when it left the EU. However, the Government has sought to minimise any disruption. Britain now operates on the basis of equivalence under a ‘Temporary Permissions Regime’. In short, the notion of equivalence asserts the UK can be granted access to EU markets. However, this is only in some areas of financial services. It is allowed when Britain is viewed as wanting the same outcomes as similar regimes.
Benefits of Brexit for your investments
There is no doubt that the cloud of Brexit has made investing that little more difficult for UK investors and European investors alike. Britain is a huge trading partner for the EU. The unique trading rules ratified in the trade agreement threaten to change that. But all is not lost. There are some benefits to Brexit and your investments.
Unique investment opportunities
Seasoned investors often proclaim some of the best investment opportunities are found in adversity. The reason being is that some companies manage to find and create the right environment for growth. That growth can sometimes be at an unprecedented rate. That rate creates unique investment opportunities that could provide high returns for you.
Perhaps one of the most volatile markets which provides the opportunity for money to be made is Forex. Forex investments are highly sensitive to political changes at the best of times. The result is that post-Brexit, those who have a potential Forex investment idea that proves to be right, stand to make money. Given how politically influential Brexit is, Forex movements are likely to be quick and fast. While the true implications of the trade agreement are realised, that looks set to continue.
It is essential to highlight that one of the most significant potential benefits of Brexit for your investments is that there was a trade agreement. It was touch and go for a while that the two sides would agree on a deal. Having a trade agreement is arguably better than having no trade deal. It gives both parties something to work from as opposed to being left to trade under WTO agreements. Some may argue that the trade agreement did not go far enough to protect the UK’s financial services industry. However, the idea of equivalence is broadly seen to be better than trading as simple WTO partners.
Disadvantages of Brexit for your investments
Of course, this controversial bill and agreement was never going to have only advantages. There are many potential disadvantages to investing in a post-Brexit world. They are good to be aware of so that you can mitigate against them as best you can.
Short term volatility
There will undoubtedly be continued short term volatility. Any teething problems from the trade agreement need to be properly ironed out. When put into practice, the trade agreement has proven to have some sticking points that need to be solved. Issues such as not having enough custom agents at borders need resolution. These issues result in inefficient trading of goods, amongst other problems. Such problems impact the markets and create short term volatility. However, while volatility can make investing hard in the short term, volatility is not always bad. Having an emphasis on good fundamentals should mean that a good investment can produce long term returns.
The problem with the current short term volatility that we are seeing is that it comes on the back of a long period of sustained uncertainty. Brexit and how it would practically be put in place cast a shadow over UK and European investments since 2016. Sadly, even with the trade agreement in place, there still will be a period of uncertainty to come while the markets watch how companies react to the new state of play.
Fall in the pound
The fall in the pound’s power since Brexit can cause you and other investors difficulties. As previously mentioned, Forex can be a place to make money in during highly volatile times. It is also a place where a lot of money can be lost. The fall in the power of the pound may have cost you money and may continue to do so. Any fall in the pound affects a UK investor’s ability to purchase overseas stocks or shares.
Brexit and your investment activities
Brexit was a big unknown for a very long time. However, now that the UK has left the EU, slowly but surely, the volatility that it created may be minimised. If you have a diversified portfolio, your portfolio should already be protected against a large amount of Brexit's impact. Hedging against risk is one of the main reasons that experts so often recommend a