More than a third (37 percent) of institutional investors surveyed think their company will use more cross-border fund locations, as they consider the economic impact of Brexit.
The Q3 2018 survey, conducted by State Street, found over half (57 percent) of survey participants would use Luxembourg for cross-border fund locations, while some 54 percent said they would choose Ireland as the most attractive cross-border fund location.
The survey also indicated that the number of institutional investors looking to increase their holdings of UK assets rose to a record high of 21 percent, an eight percent increase from 13 percent in Q2 2018, and higher than the previous set record of 16 percent in Q3 2017.
In addition, despite a sharp decrease in positive outlook for the global economy between Q1 2018 and Q2 2018, when investors with a positive outlook dropped from 55 percent to 36 percent, sentiment has now risen to 43 percent.
Consequently, the number of investors with a negative outlook for global economic growth fell to 15 percent, an eight percent drop from Q2 2018.
Aside from a more optimistic outlook, Q3 2018 saw a growing number of investors anticipating that Brexit would have a major impact on their business operating model, with 26 percent of respondents believing its impact would be ‘significant’, a 12 percent increase from Q2 2018.
Regulatory reporting issues, such as those required under Solvency II and The Alternative Investment Fund Managers Directive, remain the most in-need service (28 percent) despite having fallen by nearly 10 percent since Q1 2018.
Some 17 percent of respondents believe fund restructuring is another area that businesses will need the greatest help with following Brexit, overtaking performance and risk analytics which fell to 8 percent.
Michael Metcalfe, head of global macro strategy at State Street Global Markets, said: “Investor sentiment toward UK assets is becoming increasing bifurcated as Brexit deadlines loom larger.
On balance, the optimists, those planning to increase their holdings, are still winning the day—just.”
He added: “The story of Brexit so far is that fears of economic disruption and capital flight have been unfounded and investors have been willing to give the UK the benefit the doubt. But the closer we get to the key Brexit deadlines without signs that a deal can be reached, the more likely it is these fears will become a reality that investors will need to adjust too.”
Bill Street, head of investments for Europe, the Middle East and Africa, commented: “Sterling has remained under pressure, reflecting currency markets’ low expectations with respect to Brexit negotiations, with only a brief rally as interest rates were raised.”
“The extent of negative sentiment, combined with undervaluation, means that the currency tends to rally sharply on more positive news headlines.”
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