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“All things being equal, one would expect that on the margin there would be a reduction in foreign direct investment given that level of uncertainty.” So said BoE chief Mark Carney in early March, when he testified before Parliament’s Treasury Select Committee about the risks of a vote to Brexit. He wasn’t alone. The IMF, London School of Economics and a few dozen other economists and financial luminaries were sure Brexit would hit foreign and domestic investment alike, as uncertainty and a weak pound scared away capital. Yet so far, five weeks later, there isn’t much evidence they were right. UK assets are in high demand, and investors globally seem eager for a piece of the growing pie.
The fun started during the week after the referendum, when negative sentiment was at its peak. Chinese telecom firm Huawei, which in 2012 announced plans to invest over £1 billion in Britain by 2017, reaffirmed its commitment. Its R&D centers in Ipswich and Bristol aren’t going anywhere. Simultaneously, France’s government and state-owned utility, EDF, said the vote will have no bearing on their plans to build the infamous £18 billion nuclear reactor at Hinkley Point. (UK Prime Minister Theresa May has since delayed approval of the project, but that’s domestic political gamesmanship, not an indictment from foreign investors.) And in an amusing turnabout, German industrial giant Siemens first warned it might rethink some UK investments after the vote, then changed its mind two weeks later. Sentiment is sure funny.
Things really got cooking in July, when Japanese telecom giant SoftBank announced it would buy Cambridge-based chip designer ARM for a cool £32 billion—a 43% premium over its share price at the time—in an all-cash deal. And this isn’t a “buy the firm and move everything over to Japan” deal. They plan to double ARM’s UK-based operations over the next five years and keep R&D in Britain. In or out of the EU, SoftBank decided the UK should be their tech gateway to Europe. They aren’t alone: Foreign firms have bought 59 other UK companies since the vote. Most of the deals are small, and the number is down a bit from the 79 foreign acquisitions during the month before the vote, but a deal is a deal. If a few dozen foreign firms believe in Britain’s post-Brexit prospects, that is a pretty darned inspiring vote of confidence.
So is the revelation that in the month after Brexit, UK startups attracted about $200 million from venture capitalists the world over. While that’s down from the same period in 2015, this seems less tied to Brexit, as it’s in line with a global VC funding slowdown. Venture capital is down year-over-year in the US, too. So don’t get hung up on the difference versus 2015—just know funders see plenty of upside in new UK tech firms.
Brexit hasn’t derailed a certain in-progress megamerger, either. Just the opposite! Days after SoftBank’s big splash, Belgium’s AB InBev raised its offer for Britain’s SABMiller to compensate shareholders for volatility in the pound. Yes, rather than try to push for a bargain, the Belgian brewer forked over some extra cash to ensure it could seal the deal and establish a strong UK foothold. After a bit of dithering, SABMiller accepted the bid Friday morning. (No word on whether the board sealed it over a few pints, but I secretly hope so.)
Domestic firms are still eagerly investing, too. GlaxoSmithKline Plc, the UK pharma giant, just announced plans to invest £275 million at three domestic manufacturing sites. UK cybersecurity firm BAE Systems’ pension fund arranged a £35 million deal to invest in local retirement housing. Insurance firm Legal & General announced it’s on the hunt for property development deals in Wales.
Investors are also still gobbling up UK Gilts—which also wasn’t supposed to happen, according to the BoE et al. Supposedly, Her Majesty’s Treasury would depend on the “kindness of strangers,” who would demand an astronomical premium to lend to a Brexit-bound UK. Welp, at the four Treasury auctions since the referendum, the opposite happened. All were oversubscribed at lower yields. The 10-year Gilt auction on July 7 saw bids for 2.3 times the amount available, at a 0.912% yield. Two weeks later, investors bid a 24-year bond with a 4.5% coupon so high that the yield at the average accepted price was just 1.6%. In other words, the thing sold for over 50% above face value. Since when do kind strangers do that?
Of course, it hasn’t all been rosy. Sir Richard Branson claimed his Virgin Group shelved an acquisition due to the referendum, and one of the big four banks just announced 3,000 job cuts, citing Brexit. (We aren’t 100% convinced Brexit is the full story, considering the same bank already had cost-cutting plans and has repeatedly cut jobs since 2008.) But those are the exceptions, not the rule. There is always some give and take, but overall and on average, investors see plenty of opportunities in the UK. As for that widely discussed “stampede” out of UK funds, don’t overrate fund flows. For every seller, there is a buyer, and with the MSCI UK Index up nicely since the vote, demand for UK stocks is clearly alive and well.
As we wrote earlier this week, it’s still far too early to draw sweeping conclusions about Brexit’s economic impact. But evidence is trickling in, and thus far, it isn’t apocalyptic. Even if you’re still sad about Brexit from a sociological standpoint, as far as the UK economy and markets are concerned, there are plenty of reasons for optimism.