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European Politics give Markets Cause for Consternation, Cunningham Coates

Cunningham CoatesBusiness First took the opportunity to speak to Jonathan Cunningham, Partner at Cunningham Coates about how issues around Brexit and European politics are giving the financial markets a serious cause for concern.

“These are unprecedented times.” Advises Jonathan:  “And the global focus could well be on Northern Ireland – now a potential border frontier within a post Brexit Britain.”

Jonathan is well placed to comment, as an industry expert he is the fifth generation of the Cunningham family to lead Cunningham Coates, Belfast’s longest standing investment management firm.  The company is celebrating 175 years in business in 2018, having been established by Jonathan’s great-great-grandfather, Josias Cunningham, in 1843.   Since then the firm has navigated their client’s investment options through some of the biggest events in history – from two world wars to the depression and multiple financial crises.

“The European Council meets on the 28-29th June to discuss the Irish border issue.”  States Jonathan:  “Which appears dependant on the formation of a new customs union between the UK and the EU.  This is widely seen as the last major risk to the Brexit negotiations – and the solution is far from clear, creating some nervousness in the markets.

“In London, as well as leaving the single market, the government is committed to exiting the EU customs union. The House of Lords has already passed an amendment to the government’s EU Withdrawal Bill to negotiate a new UK-EU customs union.  The government has delayed such a vote in the House of Commons twice before, but a change of stance by the Labour party (in favour of a customs union with the EU) and greater cooperation between opposition and soft-Brexit rebel conservative MPs, adds pressure on the Prime Minister to allow a specific (and possibly binding) vote on the customs union.

“Should Prime Minister May decide to include a customs union in the EU Withdrawal Bill, which is due to be voted on in Parliament around October, it is likely to alienate the pro-Brexit Tory MPs, since it would make it impossible to negotiate trade deals with countries outside the EU and undermine the ‘global vision’ of Brexit.

“Alternatively, should the UK leave the EU customs union, it may require ‘hard border’ infrastructure between Northern Ireland and the Republic that could lead to the Democratic Unionist Party MPs withdrawing their support for the government. The fallout from the UK-EU customs union issue could become entangled with a leadership challenge and a possible snap general election.

“A hard border would have a dramatic effect – Ireland is by far Northern Ireland’s largest external trading partner.  The business sector in Ireland, in particular the agri-sector, rely on a frictionless border, so the results could be devastating.  There is no doubt about it – it’s a tightrope walking exercise for Prime Minister May.

“Needless to say the news agenda around this is driving conjecture – and conjecture is creating uncertainty.  If there is one thing investors don’t like it is uncertainty which is translated into volatility, especially of the currency, which in turn is bad for business – resulting in a negative feedback loop.

“However this particular Brexit issue is relatively parochial and as such can be managed through proper geographic diversification, which can largely offset the effects of the volatility of any individual currency, or indeed any particular economy.

“As investment managers at Cunningham Coates we have followed the same principles for the past 175 years.  We operate a bespoke approach to supporting our clients and are always available, always engaged and aim to stay abreast of market conditions.  We understand risk, forecast it, and aim to protect our clients from it by building well-diversified, bespoke investment portfolios.  There are clearly a number of issues that Prime Minister May needs to address – thankfully we have already put measures in place to protect our clients investment from the impact of Brexit, whatever form it takes.”


Risk warning

Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back, in total, the original amount invested. Past performance is not a guide to future performance. Rates of tax are those prevailing at the time and are subject to change without notice. Clients should always seek appropriate advice from their financial adviser before committing funds for investment. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.


Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.  Cunningham Coates is a trading name of Smith & Williamson Investment Management LLP, which is part of the Smith & Williamson group.  Smith & Williamson Investment Management LLP is authorised and regulated by the Financial Conduct Authority