Nigel Green

Investors need to prepare now for three key issues ahead of Britain formally starting divorce proceedings with the EU. UK Prime Minister Theresa May is expected to trigger Article 50 of the Lisbon Treaty on March 29.

By this time next week, Britain will have officially started the process of unravelling itself from the European Union. This is one of the most complex negotiations in political history with global consequences, and as with most divorce proceedings, it is unlikely to be completely smooth sailing. As such, investors need to ensure their portfolios are ‘Brexit-proofed’.

With the clock ticking on the starting pistol being fired, investors need to prepare now for three key issues.

First, be prepared for increased market volatility.  Uncertainty creates tidal waves of volatility across financial markets – and the Brexit negotiations represent a huge unknown.

Against a backdrop of growing volatility, investors need to ensure that their portfolios are truly diversified. This means investing across geographical regions, sectors and asset classes. Those with a well-diversified portfolio are always best-placed to mitigate risk in times of market turbulence, and best-placed to take advantage of the opportunities.

UK assets are likely to feel the heat. Investors should consider taking precautions against the potentially significant adverse effects of Brexit on UK assets, which they can do by increasing exposure to overseas investments.

Second, be prepared for sterling to experience further swings.  The pound fell 10 per cent against the dollar in the week after the referendum to leave the EU. Similarly, it dipped this week when Theresa May confirmed the trigger date of Article 50.

Sterling is currently considered cheap, considering the underlying buoyance of the British economy, now forecast to grow 2 per cent in 2017. This is a buying opportunity for some investors.  However, with an enormous question mark hanging over the negotiations, and the creeping inflation, the pound’s current low value might not last.

And third, be prepared for the far-reaching impact of higher UK inflation and higher interest rates. This week, inflation hit its highest level in more than three years – and smashed the Bank of England’s official target.  This has raised expectations that interest rates could be hiked sooner rather than later.

This new landscape will present a new set of winners and losers for investors. A good financial adviser will help them select the right investments and, crucially, at the right time.

A lot has happened since the EU referendum in June 2016, and today the economy is facing a very different set of issues.  The economic landscape will continue to shift significantly during the two-year negotiation period.  Investors need to remain aware and agile and ensure their portfolios are Brexit-proofed.

Nigel Green is founder and CEO of deVere Group

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What is your take on the electoral result in the Netherlands?

After the annus horribilis in which several elections resulted in unexpected outcomes (admittedly without the much feared negative impact on asset prices), this time we have had a result that is in line with recent polls and will not lead to a tremendous change in the policy and political approach of the country involved. That said, a negative aspect is the fragmentation across parties of the result (also expected), which will likely be a source of instability and difficulty for the government.

It remains to be seen how the incumbent premier, Mark Rutte, will try to form a new government. It seems clear that any coalition will involve at least four parties, ranging from the center-to-right to the left of the political landscape (generally, ‘Pro-Euro’); during the campaign, he repeatedly ruled out any possibility of repeating a coalition with Geert Wilder and his anti-immigration Freedom Party.

Do you think this could influence the outcome of elections in France?

Success breeds success: this was apparent last year with the rise of the ‘populistic’ movements across the globe.  This result could, therefore, suggest that a peak in the appeal of these ideas is behind us and that a more constructive approach to policy and politics and, above all, to Europe is gaining momentum. So, yes, in our view, it could have a positive influence on the French vote.

What is your assessment of the risk of a Euro break-up and how has it changed over the last few months?

A break-up of the Euro is, economically speaking, an unacceptable event. European Central Bank President Mario Draghi abruptly clarified this concept when he stated the fact that any country exiting the Euro would need to clear its Target2 balances first (which for Italy amounts to around €390 billion).

But what if Euro-sceptic forces start taking the lead in a number of countries? We think a useful analogy here is to imagine the Eurozone and Europe are a cyclist that is going uphill. They cannot stop pedaling until they reach the top of the hill (i.e., when everything is in order, and clearly we are not there yet) otherwise they will start to go backwards and will, eventually, fall down in a heap. This may appear a bit extreme: on some issues, the progresses and benefits of the currency and Union are clear; but there are other mechanisms, particularly in the field of sharing risks, solidarity and common policies, that still have to be resolved. And these have been put under severe pressure given the scale of the recent crisis. The cyclist must arrive at the top of the hill and commence the downhill journey before the next crisis arrives. Yet, if Euro-sceptic forces gain appeal and power in the Eurozone and Europe, we see an increased likelihood that our cyclist stops pedaling.

Last year, starting with Brexit, the probability of a ruinous standstill in Europe rose materially, although it is still considered a tail event. Higher spreads between OATs (the 10 year French government bond) and BUNDs (the 10 year German government bond) are the market’s assessment of that probability (which does not including credit risk or sovereign default risk). Meanwhile, the issue of a Euro exit, or adoption of a different currency, is a recurrent theme – most recently in the electoral positioning of political parties in Italy – is another perilous sign.

The Dutch electoral result has enabled this risk to recede a little, but there are a number of political issues ahead: elections in France, Brexit with the complication of a second Scottish independence referendum, the still unresolved Greek question, and possible political instability in Italy to name a few.

How can investors deal with geopolitical risk within a multi-asset approach?

Geopolitical risk remains, in our view, the main factor for investors to watch over the next few months. Financial markets are too complacent ahead of the wave of elections in Europe: equity volatility is reaching new lows even though the probability of a country leaving the Euro, as highlighted by the Sentix Euro Break-Up Index, is trending towards post Brexit levels.

If we also consider the uncertainties related to the execution of Trump’s policies in the US, and of his potentially unfriendly foreign policy for some Emerging Markets, we see significant risks of disappointment for financial markets. This also considering extended valuations in many developed equity and credit markets.

Therefore, we believe investors should consider implement hedging in an effort to partially offset the negative effects of geopolitical risk. There are multiple strategies available for investors: lowly correlated assets, such as gold; currencies that tend to behave as ‘safe havens’, such as the Swiss Franc, and, especially in case of rising risks in the Eurozone, the US dollar; or the use of derivatives to try to protect risk asset exposure. A multi-asset approach, which includes hedging among its investment strategies, can be beneficial in a period of rising geopolitical risk. It can efficiently combine the most effective hedging techniques, determining cost-efficient strategies for those risk events deemed most likely and impactful.

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If it gets parliamentary approval, this will be the second Scottish independence referendum after 2014, when the region had voted to remain a part of the UK.

“I will take the steps necessary now to make sure that Scotland will have a choice at the end of this process. A choice of whether to follow the UK to a hard Brexit, or to become an independent country able to secure a real partnership of equals with the rest of the UK and our own relationship with Europe,” Sturgeon said.

Polls since the Brexit vote have shown that support for Scottish independence has been relatively unchanged since the first referendum in 2014.

UK Prime Minister Theresa May is expected to deny permission for another referendum. May was quick to react to Sturgeon’s announcement, hitting back at her claim that the government had put up a ‘brick wall’ over Brexit arrangements.

“We’ve been working closely with the devolved administrations,” said the PM. “We’ve been listening to their proposals and recognising the many areas of common ground we have, such as protecting workers’ rights and our security from crime and terrorism. The tunnel vision that the SNP has shown is deeply regrettable. It sets Scotland on a course for more uncertainty and division. This is at a time when the evidence is that the majority of the Scottish people do not want a second independence referendum.”

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The meeting was held at the MOE’s headquarters in Abu Dhabi. It was attended by Juma Mohamed Al Kait, Assistant Undersecretary Foreign Trade Affairs; and Sultan Ahmed Darwish, Director of Trade Negotiations and WTO; while Australia was represented by Arthur Spyrou, Ambassador to the UAE and a number of members from the Australian diplomatic mission.

Both parties discussed the growth and development in terms of economic relations between the two countries, particularly in the expansion of non-oil trade as well as the outstanding cooperation in the aviation sector.

H.E. Al Saleh emphasised the keenness of the UAE to strengthen the framework for mutual cooperation with Australia, which is characterised by an exceptional partnership that defines cooperation between the two countries at all levels. This is reflected in the remarkable growth of non-oil foreign trade volume, which had exceeded $2.1 billion during the first nine months of 2016, and more than $2.8 billion in 2015.

Al Saleh further explained that the level of bilateral economic relations have been remarkable and that the next level would bring a number of new types of opportunities by diversifying sources of economic and commercial bilateral relations. In order to expand the development trends of the two countries, he noted that sectors such as agriculture and industry, renewable energy, tourism, information and communications technology are among the priority sectors of both countries.

The UAE’s total investments in Australia by the end of 2015 has reached $12.55 billion, including $2.93 billion of direct investments accounted for.

Secretary Adamson said that Australia is keen to enhance joint cooperation with the UAE and build a framework and model of cooperation and exchange experiences and expertise in priority sectors, following on the economic agenda of the two countries.

Adamson expressed interest for the expansion of joint investments, especially in light of the growing interest by Australian companies in establishing market presence in the UAE because of its competitive advantages and attractive business climate as well as being an important commercial gateway for access to markets in the region. On the other hand, the Australian government is keen to attract more UAE investments to the Australian market in various sectors.

Adamson also discussed the ongoing preparations for the upcoming visit of the Minister of Economy, leading a high-ranking economic delegation, to Australia this year, which will form part of the country’s consistent efforts to deepen economic and trade ties between the two countries and explore the most viable investment opportunities for the private sector.

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On the sidelines of the forum, H.E. Al Mansoori attended a bilateral meeting with the Dutch Minister of Economic Affairs in which both sides discussed the current status of their economic and trade relations as well as explored key opportunities to build ties across vital sectors, including energy technology, food, transport, and logistics.

The two sides signed a Memorandum of Understanding (MoU) on innovation during the forum to put in place an effective mechanism to facilitate knowledge and technology exchange between their respective business communities, scientific research institutions, and government agencies.

The UAE delegation comprised H.E. Eng. Mohammed Ahmed bin Abdul Aziz Al Shehhi, Undersecretary for Economic Affairs; H.E. Mohammed Khamis Al Muhairi, Undersecretary of the Ministry of Economy and the Minister Adviser to the Tourism affairs; and H.E. Saeed Ali Al Nowais, UAE Ambassador to the Netherlands. Representatives of federal and local government agencies also joined the delegation. They included H.E. Khalifa bin Salem Al Mansouri, Acting Undersecretary of the Department of Economic Development in Abu Dhabi; Jamal Al Hai, Deputy CEO of Dubai Airports; Ahmad Obaid Al Tunaiji, Deputy Director General of the Department of Economic Development in Ras Al Khaimah; Dr. Hashim Al Nuaimi, Director of Consumer Protection Department at Ministry of Economy; Hussain Al Mahmoudi, CEO of AUS Enterprises in Sharjah; and high-ranking officials from the General Civil Aviation Authority (GCAA), Telecommunications Regulatory Authority (TRA), Abu Dhabi Fund for Development (ADFD), Dubai Chamber of Commerce and Industry (DCCI), Masdar, and the Netherlands Business Council in Dubai (NBC).

During his opening speech, H.E. Al Mansoori emphasised the vibrant economic and trade relations between the UAE and the Netherlands, as well as their shared interests in developing priority sectors as part of their respective economic development agendas. According to him, the foreign non-oil trade between the two countries amounted to about $3.8 billion by the end of 2015, and more than $2.7 billion during the first nine months of 2016.

The UAE Minister added that the next phase of their partnership will involve stronger economic relations in view of ongoing efforts to establish new cooperative mechanisms through exchange of expertise and experiences in the areas of innovation and small and medium enterprises (SMEs). H.E. Al Mansoori added that the UAE is looking forward to benefitting from the Netherlands’ wide experience in innovative science and modern technology. This will help the UAE create a knowledge- and technology-driven sectors, including renewable energy, food, transport, logistics services, health care, and smart cities.

H.E Al Mansoori pointed out that innovation is one of the key pillars of the UAE’s development vision with which the state has taken numerous initiatives to enhance its capabilities and potential, and establish supportive environment for innovation focusing on energy, transport, technology, health care, education, water and space.

H.E. also took the chance to share the UAE’s fundamental objectives, namely to be among the top 10 countries on the Global Innovation Index by 2021; increase the contribution of innovation to the gross domestic product (GDP) to 5 per cent from the current 3 per cent; and raise the share of scientific research development to the GDP to 1.5 per cent.  H.E. Al Mansoori also outlined the country’s large-scale projects on transportation and space infrastructure.

For his part, Kamp underscored his country’s keenness to enhance its cooperation with the UAE, specifically in the mutually beneficial areas of innovation and advanced technology. He noted during his speech the UAE’s steady development, making the Arab state a destination of choice for investors.

H.E. also pointed out the Dutch companies’ high interest to enhance their presence in the UAE market.

The Dutch Minister further highlighted a number of promising collaborative opportunities in the areas of research and technology, specifically in terms of the development of innovative infrastructure in transportation and advanced industries. He said that the Netherlands is one of the world’s leading countries in these fields, adding that the latest MoU will enhance the cooperative framework in this regard.

H.E. Al Mansoori and Kamp signed the MOU at the end of the forum. The terms of the agreement include enhancing and exploring wider cooperation in innovation by encouraging, facilitating, and organising exchange of experiences; and forging partnerships between their respective government entities, business incubators and startups, academic and scientific institutions, and the private sector.

The top five priority sectors:

—    Renewable energy and energy sustainability

—    Innovation in the field of food and water

—    Space and aviation

—    Innovation in life science and health care

—    Smart cities

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February 13, 2017: The concept of macroeconomics can be complicated enough, without attempting to correlate the real-time relationship that exists between entities such as inflation, interests and the value of the pound. This correlation is particularly difficult to trace at present, thanks primarily to the lingering spectre of Brexit and the impact that is having on every aspect of the British economy.

Let’s start with the value of the pound, however, which has experienced mixed fortunes since the June referendum vote. Although it sunk to a record low in the hours after the result was announced, it rebounded steadily during the third financial quarter. Then it plummeted to a new, 31-year low after a Theresa May-led conference in October, during which she revealed the likelihood of a hard Brexit and her initial intention to trigger Article 50 in March of 2017.

Inflation, the pound and the rising cost of imports

As if this was not enough, the pound experienced a further dip after disappointing UK inflation data, which emerged despite the overall rate declining from 1% to 0.9%. Although this surprised experts who had predicted a slight rise in inflation, the overall rate continues to outstrip the base interest rate being maintained by the Bank of England (BoE). This is beginning to have a huge impact on savings accounts rates and households nationwide, while the Office for National Statistics (ONS) also relayed that factory gate prices and the cost of raw materials also increased at a disproportionate rate throughout October.

As we can see, this is continuing a destructive macroeconomic cycle, as a perpetually weak pound continues to trigger inflation hikes while creating a need to maintain base interest rates.

This trend is likely to continue for the foreseeable future, at least until there is greater clarity concerning the terms of Brexit and the UK’s economic strategy in the meantime. The fact that raw material costs are also rising sharply offers an indication as to how a weak pound is beginning to increase the cost of imports, which will translate into higher consumer inflation over time. According to recent PPI data, the cost of procuring materials jumped by a record margin in October, increasing by 4.6% over a four-week period.

Similarly, price of goods leaving factories has already risen by its highest margin since April 2012 (2.1%), meaning that customers are beginning and will continue to shoulder the burden of a weak pound and soaring, disproportionate inflation levels. This is particularly concerning, as our economy currently remains over-reliant on consumer spending and borrowing, meaning that a sustained period of currency volatility and high inflation could have one of two significant consequences; either consumers will borrow more and create an increased debt burden, or simply stop spending and save their money. Both these options are potentially harmful to the economy, meaning that the threat of a recession will continue to loom as we enter 2017.

Are there reasons for optimism?

At this point, it is important to note that there are reasons for optimism in the UK. Firstly, developed economies and the financial markets have become increasingly robust since the Great Recession, while economists, investors and political leaders have applied determinism to minimise the impact of volatility. This is likely to be the case here, with the Federal Reserve in the US and the UK’s own BoE considering hiking interest rates as a way of negating some of the havoc wreaked by rising inflation (this will be good news for savers in particular). Additionally, although growth slowed according to the recent GDP results, there was some growth to speak of.

The pound itself also received a boost when Donald Trump was announced as the President-elect in the United States, as this triggered a wave of volatility with the global markers and triggered a decline in the value of the dollar. This led to gains for the GBP/USD, although many of these were lost at the beginning of the week. Given that little is known about Trump’s precise economic policies (and the fact that the real estate mogul is known to favour a slightly weakened dollar), the pound may be able to make further gains during the next financial quarter, make sure to keep an eye on currency trading rates.

The last word

Ultimately, much will depend on the BoE and how it intends to restructure and rebalance the macro economy. This will almost certainly mean a rise in interest rates, as this will at least partially minimise the impact of rampant inflation.

It can do little about the value or the volatility of the pound, however, which remains the main trigger of inflation and rising import costs. Resolving this issue sits on the shoulders of the government, who must act decisively when dealing with Brexit and strive to lay out a clear path of growth going forward.

Marcus Turner Jones is an investor based in Buenos Aires

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Eng. Mohammed Ahmed bin Abdul Aziz Al Shehhi, the UAE Ministry of Economy’s Undersecretary for Economic Affairs, and Husnu Dilemre, the Acting Deputy Undersecretary of Turkey’s Ministry of Economy, will lead the technical and preparatory meeting prior to the JEC ministerial meeting in the presence of Khalifa Shaheen Al Marar, UAE Ambassador to the Republic of Turkey, along with a number of senior officials and government representatives of both countries.

The meeting’s agenda will include a discussion on forming cooperative agreements in a number of important areas, particularly the expansion of bilateral trade and the creation of a cooperative model for knowledge exchange in the areas of innovation and small and medium enterprises (SMEs). The session also seeks to highlight investment opportunities in the tourism, hospitality, food, transportation, renewable energy, health, and financial services sectors. It will discuss ways to enhance cooperation in the field of civil aviation as well.

H.E. Al Mansoori, UAE Minister of Economy, said that growth opportunities for UAE-Turkey relations have not been fully explored, adding that the resumption of the JEC between the two countries is a positive step towards advancing the level of economic and trade relations between the two countries.

He noted that innovation, SMEs and entrepreneurship are areas that hold many opportunities for cooperation and the exchange of expertise as well as the establishment of partnerships at both the government and private sector levels. He added that the UAE is highly interested in further developing areas of cooperation and creating new investment opportunities in civil aviation as the sector has a direct impact on trade and tourism flows.

The UAE minister highlighted the many achievements of the Turkish economy and its outstanding international reputation in the industrial sector, which he referred to as an important gateway to expand cooperation between the two countries through the exchange of knowledge and expertise in line with the UAE’s vision of establishing a highly advanced industrial base that adds value to the national economy.

He also emphasised the Turkish market’s importance for UAE products and exports, as well as Turkey being an access route to several European and Asian markets, similar to how the UAE provides a strategic link between the East and the West. He said that this presents promising possibilities for their joint economic and trade relations to expand to broader markets in the future.

The trade volume between the UAE and Turkey has dramatically increased in recent years, with bilateral non-oil foreign trade inclusive of free zone activities reaching $7.4 billion by the end of 2015. Turkey was the UAE’s 15th biggest global trade partner, sixth largest importer and 13th top exporter for the same year.

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Nigel Green

January 19, 2017: Theresa May’s Brexit speech and strong inflation data should prompt investors to reduce exposure to UK assets and invest more internationally.

After months of keeping her cards close to her chest, in her most important speech since becoming Prime Minister in July, Mrs May told the world that her plans for Brexit cannot allow the UK to remain in the European single market.

Although this stance has been widely expected by the markets, it is likely that this confirmation of a hard Brexit will trigger several years of ongoing uncertainty.

The markets detest uncertainty. As such, investors should take precautions against a potential fall in the value of UK assets and avoid firms dependent upon UK-only earnings.

Investors can achieve this by increasing exposure to non-UK investments, such as international stocks, bonds and property.

Stronger-than-expected inflation data – UK inflation has hit its highest level since the middle of 2014 – also adds weight to the argument to reduce portfolio exposure to UK assets as the Bank of England could be more inclined to now hike interest rates.

Regardless of the hard Brexit and the increasing likelihood of a rate rise, many investors should be considering a rebalance of their portfolios away from the UK.  Investing across geographical regions is one of the fundamentals of a well-diversified portfolio – and those with a well-diversified portfolio are best-placed to mitigate risk in times of market turbulence and best-placed to take advantage of the opportunities.

The greater diversification that is secured by ‘going more global’, the greater the reduction of overall portfolio risk.

Nigel Green is the founder and CEO of deVere Group

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Trump had threatened to scrap the North American Free Trade Agreement, impose high tariffs on certain products and even build a wall on the southern US border. Trump also said that he would send all illegal immigrants back to Mexico.

Following criticism that Mexico has been too tepid in its reaction to Trump’s threats, Foreign Minister Luis Videgaray defended Mexican immigrants in the US, who Trump labelled as criminals, saying in most cases they’re the best of Mexico.

“There are voices being raised that are promoting a strategy of conflict, confrontation and… insults,” Videgaray said on Monday. “Other voices are forecasting embarrassing submission. Mexico shouldn’t opt for any of those… We will negotiate with intelligence and common sense.”

The peso plunged to new lows after Ford Motor Co. cancelled a $1.6 billion factory in Mexico and Trump threatened General Motors Co. with tariffs for importing a version of its Chevrolet Cruze from Mexico.

Trump will take office on January 20, post which he is likely to announce a policy for Mexico.

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In the first three quarters of the fiscal year that ends in March, overall indirect tax collections were up 25 percent from a year earlier.  Tax collection was up 12.01 percent in April-December 2016, compared to revenue in the year-ago period.

On November 8, Prime Minister Narendra Modi announced a ban on all 500 and 1,000 rupee notes aimed at counterfeiters and hoarders of black money. Demonetisation affected the nation as a whole causing a major liquidity crisis.

The shock decision prompted most private economists to slash growth forecasts for Asia’s third largest economy to 6.3-6.4 percent for the fiscal year 2016/17 from over 7.5 percent, citing the impact of demonetisation, which they said would linger for one more year.

Jaitley called those concerns unfounded. “All the stories about job losses or businesses suffering losses are anecdotal,” he told reporters.

“Tax collection data is real and not an estimation,” Mr. Jaitley explained, while dismissing fears of a slowdown following the currency crackdown.

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