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As negotiations between the UK and EU enter their final stages in December, many investors are impatient to discern how the outcome might affect their investments in the near future. The trade talks are scheduled to end on the 31st December 2020, at which time the “pre-departure” transition period will conclude. Should the two parties fail to establish a formal trade agreement then the UK will depart on “no-deal” terms, likely to trade under WTO rules with the EU.
How likely is this outcome and how might it affect UK investors – particularly those interested in the startup sphere? If a deal is made, however, what impact might this have on such portfolios? Our investment team here at Bure Valley Group addresses these questions below.
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December 2020 – how likely is a deal?
At the time of writing, Prime Minister Boris Johnson is in direct talks with the President of the European Commission – Ursula von der Leyen – to try and resolve the outstanding obstacles to a trade deal. The three primary issues at this stage appear to be fishing rights in British waters, governance (to resolve disputes) and state aid. It is unclear whether these gaps can be bridged, although markets largely seem to anticipate a “last minute” deal of sorts before the deadline.
How is Brexit affecting stock market investments?
The picture has been muddied in Q4 of 2020 by the ongoing economic fallout from COVID-19. How much of market volatility in recent months can be attributed to this, for instance, versus the negotiations over Brexit? It is difficult to quantify. Yet it is fair to say that political events are often amongst the biggest drivers influencing stock market performance.
This was apparent when Joe Biden was announced U.S. President-Elect on the 7th November, which resulted in many stock markets rising around the world in hope of further stimulus to lift the U.S. economy. With Brexit, perhaps its biggest influence on equities at the moment is the uncertainty it is creating, often lowering investor confidence. However, it’s worth noting that this lower certainty can be an opportunity for others. After all, there are often greater rewards on offer where there is also higher risk.
How might “no-deal” affect startup investors?
This is where the discussion naturally leads to startup investors, whose investments are often characterised as “higher risk, higher reward”. According to the British Business Bank, more than 50% of UK angel investors have continued to add new startup opportunities to their portfolios in 2020 – despite the negative effects of the pandemic upon the wider economy. Moreover, 46% of startup investors plan to continue building their portfolio throughout the 2020-21 financial year; i.e. even into the new year, when the UK might possibly leave the EU without a deal.
It’s worth stating that many startup companies in specific sectors could actually benefit from a “no deal” outcome. Examples might include those working in healthcare, biotech, life sciences, pharmaceuticals and software as a service (Saas). Perhaps surprisingly, 72% of angel investors state they are confident about the growth potential of their portfolio over the next 12 months. It seems that Brexit is not destined to cast a dark shadow over the entire investment landscape in the UK. Rather, it will likely shift the nature of the landscape in an indeterminate way – opening chances for prudent angel investors to jump on opportunities which perhaps others might miss.
With all of the media gloom foisted upon the British public throughout 2020, it would be easy to miss the positive investment stories which have been told – and which are set to unfold over the months ahead. The UK tech industry, in particular, has still seen remarkable growth – attracting a record-breaking $13.5bn in 2019 and another $5.3bn between January-May 2020 alone (i.e. more than the rest of Europe combined, at $4.1bn). Much of this investment has been poured into the UK’s startup scene, with fintech accounting for 39% of fundraising in the first half of the year – followed by enterprise software companies at around 20%.
Rather than viewing COVID-19 and Brexit purely as negative events which investors must try to weather, it’s important to recognise that “black swan” events can open new doors of innovation – where technology provided by startups can step to the fore. Investors who are perceptive and bold at this time could, therefore, be faced with some rare opportunities in the months ahead – assuming they are looking. Here at Bure Valley Group, our investment network and platform is here to help investors keep their ears to the ground and vet the viable opportunities on offer.
Conclusion & invitation
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