Brexit fallout to persist

By Emma Ross-Thomas Time of article published Aug 12, 2016

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London - Hong Kong's richest man, one of the biggest investors in the UK, says the Brexit fallout is going to last years.

CK Hutchison Holdings chairman Li Ka-shing, who tried to persuade Britons to remain in the EU before the vote, said yesterday the decision will bring “considerable challenge both for the UK and for Europe for at least the next two to three years.”

He didn't detail the challenges. But there are plenty to choose from. In the spotlight this week is the impact Brexit is having on pension funds as interest rates approach zero.

Can't afford to sell

The Bank of England's bond-buying is pushing down yields, leaving pension managers and insurers more desperate to hang on to the relatively high-yielding long-term bonds they already own. That's forcing the BOE to bid higher prices to get hold of the securities, pushing yields down even further in a vicious circle.

Bloomberg's Anchalee Worrachate poses the question of whether debt purchases aimed at stimulating the economy actually risk becoming part of the problem.

BOE action is also making UK stocks look more attractive than ever compared with gilts, Bloomberg's Justin Villamil reports. Companies in the FTSE All-Share Index return 3.8 percent in dividends, near an all-time high relative to 10-year gilts. That's happening even as rising share prices reduce the dividend yield.

Read also: Brexit hits Brait’s net asset value

“Some people argue equity valuations are high, but they should be high because the alternatives to equities are not that good,” said Chris Darbyshire, chief investment officer at Seven Investment Management in London. “An equity gives you some risk of losing money, obviously, but potential for growth and it gives you a much better dividend. As long as the economic world doesn’t end, equities will stay more attractive than bonds.”

Shock, horror

Food, construction and hospitality companies are worried about how they will run their businesses if Brexit puts an end to freedom of movement, according to a study by the National Institute of Economic and Social Research. Employers, who expressed “shock” and “horror” at the referendum result, think a points-based system won't work for low-skilled jobs and fear a visa system will be unwieldy.

“The outer’s view is that migration will stop and we’ll suddenly have a sensible level of tens of thousands net migration,” NIESR quoted an unnamed bakery CEO as saying. “Whereas anybody I know who works in a food manufacturing industry is thinking ‘oh crikey, if that happens, we’re going to be seriously stuffed in terms of what we can do to make food,’” said the executive, whose 280 staff include 168 EU migrants.

On the markets

Asian stocks were headed for the biggest weekly gain in a month as a US equities rally and rebounding oil prices bolstered investor confidence amid signs China’s economy is losing momentum.

The pound was headed towards a second week of declines following the BOE's stimulus package.

And finally...

Brexit may be good news for comedians. Performers have been mining Brexit for laughs at the Edinburgh fringe, Britain's late-summer festival of theater and performing arts. And the shows are getting top marks, according to the Guardian, which says Brexit allowed comedian Bridget Christie to give her best performance yet.

Fellow comic Matt Forde, a former Labour Party adviser, said Brexit was a bit of a “godsend,” according to the newspaper.


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