Decline in sterling could see UK assets look cheap to overseas investors
With Brexit applying downward pressure on the pound, UK assets could look appetising to overseas investors, which could see the FTSE 250 index rise.
Evidence is gathering that, as sterling pulls back against a basket of currencies, opportunities are building for overseas companies to buy UK assets, according to Director of Cantillon Consulting Sea Corrigan.
‘Sterling is already historically cheap, at some point the rest of the world is going to say, ‘here we have one of the world’s biggest economies where everything is being sold at a discount’, Corrigan said.
‘Investors around the world will be looking for assets in Britain in what is still a relatively successful, major force in the economic world,’ he added.
Foreign buyers snap up UK assets
With the pound trading well below its pre-Brexit levels against the dollar, there has been a surge in overseas M&A interest in British companies.
Last year saw the US-based Comcast acquire Sky in a deal valued at $39 billion (£32.4 billion) and Japanese pharmaceutical company Takeda snap up Shire for $62 billion.
In the UK mid-market, just last month British brewer Greene King was acquired by Hong Kong-based firm CKA in a deal valued at £2.7 billion.
If the pound continues to slide, UK stocks like Imperial Brands, Intu and ITV could all see strong buying interest from overseas investors.
FTSE 250 likely to rise as pound declines
IGTV’s Jeremy Naylor looked at levels of support and resistance for the FTSE 250, using the moving average convergence/divergence (MACD) indicator and concluded that with momentum still rising, there is a case to buy the index.
‘Taking a position at 19,490, a long position should be accompanied by a stop-loss just below the 200-day SDMA at 18,990,’ he added.
The pound has lost more than 18% since the EU referendum more than three years ago, which has benefitted larger British blue-chip FTSE 100 companies with overseas earnings.
However, more domestically focused FTSE 250 companies are becoming more attractive to overseas buyers due to sterling’s ongoing decline.
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