Picture of Brexit winners begins to emerge

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at 2016.10.25
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Picture of Brexit winners begins to emerge

© Provided by Financial Times

Four months after Britain’s vote to leave the EU, there have already been winners and losers, mainly because of sharp falls in the value of sterling since referendum day on June 23.

Tata Steel Ltd

-0.20

-3.21%

Nissan Motor Co Ltd

+0.04

+0.20%

Tata Motors Ltd

+0.56

+1.38%

easyJet PLC

-0.50

-0.05%

Foreign holidays have become more expensive, the cost of imports is rising and there are fears about the impact on the economy and the public finances in the longer term.

Those who have benefited include overseas buyers of property, corporate lawyers, some exporters, stock market investors and the tourism industry. Here, the FT looks at those blessed by Brexit and whether it will last.

Foreign property investors

Since the vote, London’s property market has faltered, but not collapsed. Its resilience is largely thanks to overseas investors who have taken advantage of falls in the value of the pound.

“Real estate has become a currency play. Many are taking the view that sterling has fallen significantly and they’re happy to come in and get an income-producing asset,” said James Beckham from Cushman & Wakefield, the property advisers.

While investment in central London offices dropped 64 per cent in the third quarter from a year ago, overseas buyers made up a record proportion of that investment, accounting for more than four-fifths of the cash invested.

The story is similar for London’s housing market.

Overseas buyers made up 29 per cent of those purchasing homes in the capital’s upmarket areas in the third quarter, from 23 per cent the previous quarter. Their numbers also increased in absolute terms, according to Hamptons International, an estate agency.

The increase was especially marked in “super suburbs” such as Hampstead and Richmond. As with commercial property, UK buyers decreased.

Stock market

The FTSE 100 has risen nearly 11 per cent since the day before the vote, giving a fillip to millions of people who own shares directly or indirectly through ISAs or pensions. Another benefit is likely to be for confidence, said David Owen, chief European economist at Jefferies.

“A FTSE at about 7,000 is certainly helpful on many different levels, particularly in helping maintain a belief that the world has not suddenly ended and the economy is still functioning,” he said. “(But) in terms of household consumption the value of equities is less important than the value of housing.”

More than half of UK stocks are held by overseas investors. And while fresh rounds of central bank stimulus and rallies for oil and commodities have helped, the pound’s slump has done most of the work: priced in dollars the index is down 9 per cent since before the vote.

Many institutional investors look to have been caught out by the FTSE’s recent surge. UK stocks were the world’s least-favoured market in the months before the vote, Bank of America Merrill Lynch fund manager surveys show.

Exporters

PP Control & Automation, a manufacturing company in Walsall that employs 200, is one of the winners since the vote.

Orders have increased for its control systems, which are used in industrial machinery in sectors from food processing to metalwork, because its mostly domestic customer base has experienced a surge in business from overseas. “Weak sterling is certainly helping UK manufacturers who have healthy export demand,” said managing director Tony Hague.

PP has received £1m of orders from Germany in the past two months — equivalent to 5 per cent of its annual turnover. British manufactured goods have become cheaper.

The weaker pound has been a factor that has pulled Tata Steel’s Port Talbot plant back into profit. For large exporters such as the motor industry — Nissan’s Sunderland factory, for instance, ships about three-quarters of its cars to the EU — the weakened currency presents a choice of whether to hold their euro selling prices to increase profits, or reduce them to gain market share.

However, there is a sting in the tail.

“In reality, 50 to 60 per cent of the costs of a manufacturer on average these days are in materials they buy and a large proportion of those come from overseas,” said Tim Lawrence, head of manufacturing at PA Consulting.

Tata, for example, is reliant on imports of iron ore and coking coal, while companies such as carmakers source many components from overseas. These costs have gone up because sterling is weaker.

Tourism

At airport bureau de changes around the UK, one euro now commonly costs more than a pound. However, Britain’s domestic tourist industry is hoping for a big boost.

While Britons are unlikely to abandon their “annual trip to the sun”, other foreign holidays would turn domestic, said Christopher Rodrigues, chair of the British Tourism Authority.

Yet the picture is nuanced. Budget airline easyJet warned that currency movements cost an estimated £35m more than previously expected in the year ending in September.

In addition, about 9 per cent of those working in Britain’s hospitality sector are citizens of other EU countries.

The BTA has its own complications. “Our budgets are in sterling. At the very time when the opportunity is greatest, our buying power is reduced. It is perverse,” Mr Rodrigues said. It has asked the government to increase its £19m a year budget to compensate.

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Corporate lawyers

The big law firms and consultancy groups have clocked up many Brexit-related billable hours already.

Lawyers are advising clients grappling with the fact that the trading arrangements they have worked with for more than 30 years will be picked apart. Brexit will also have wide-ranging implications for tax, employment, financial regulation, intellectual property and company law. “It has opened up a whole new area of business,” said Jessica Gladstone at Clifford Chance.

“We analyse what the client’s exposure is to being a member of the EU and the effect of leaving,” said Gavin Williams from Herbert Smith. Law firms are also working to develop negotiating positions with government to defend clients’ interests, or to find alternatives that would reduce the impact, such as moving country.

Lawyers have not yet had a bonanza from advising the government, which announced only this month that it was opening up the Foreign & Commonwealth Office’s legal panel to outside lawyers to boost its capacity to deal with trade negotiations.

But a senior executive at a consultancy group warned that the overall outlook for the legal and consultancy sector could darken if clients delay investments and other projects because of the uncertainty Brexit has created.

“I don’t think the increase in regulatory work will compensate for the slowdown in transactions,” said Tony Williams, head of Jomati, a UK legal management consultancy.

By Jim Pickard, Judith Evans, Bryce Elder, Michael Pooler, Henry Mance and Catherine Belton

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Published at Tue, 25 Oct 2016 11:43:49 +0000

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