Long-term investments still worthwhile despite current uncertainty

Senior professionals at wealth manager UBS have voiced cautious optimism, despite political and economic unpredictability.

Aidan Dunstan, UBS executive director and regional head for the North East and Yorkshire, admitted 2019 has been a challenging year.

But he said: “Within our office we’ve recruited more people and grown our revenues by double digits.

“We went into 2019 with a tailwind with a lot of deals taking place in the first half of the year.

“Then there was a slow down in the number of deals in the second half of 2019. Why? Because of the political impasse.

“It’s not to say these deals won’t happen, but getting the election out of the way might deliver the clarity needed for them to move forward. So we see it as more of pause than deals being off the table completely.

“Acquisitions have been more PE based – where there is more cash – with fewer trade backers.

“As for those who have sold their businesses and have a big pot of cash, we’ve seen more reticence around investing that cash, despite the fact interest rates are on the floor.

“However, we don’t have a doom monger’s view and there are still very good reasons for people to commit to longer term investments.”

Dean Turner

Dean Turner, executive director and economist for wealth management, said: “I think if we get a Tory majority then we’ll know Brexit is happening and we’ll have some clarity around that.

“The language around the negotiations will be difficult, but the UK has already settled a lot of its outstanding obligations to the EU and the fact we have another year to adapt to WTO rules means less of an impact than if we’d left the EU without a signed withdrawal agreement.

“Looking into next year the global economy’s growth will probably be similar to what it was this year – about three per cent.

“Key factors will be the political backdrop. We have the US elections next year which has the potential to deliver meaningful change in policy. We also have a debate taking place globally about protectionism.

“And there are still political questions to be answered in Europe. Political volatility will be with us throughout next year.

“But political change also presents opportunities.”

Turner noted that in a more protectionist world, companies that rely on domestic and consumer spending look more resilient than those exposed to foreign and business spending.

“That leads us to favour markets like the US and Japan over markets like Europe which are very internationally exposed,” he said.

“We have six key trends for the next decade, one of which is environmental concerns. That will lead to more of a focus on sustainable investing.

“We’re seeing a lot of demand for that from clients.”

Dunstan said: “The demand for sustainable investing is coming more from our younger clients – investors aged 40 and below.

“It’s gathering momentum and is here to stay. Though a lot of what is ‘sustainable’ is simply long-term good business practice such as making sure companies have good governance at board level.”

UBS has published its Investor Watch on the Year Ahead report, which notes investors’ relatively short-term uncertainty is balanced by a more optimistic outlook for beyond 2020.

The report states: “In the next 10 years, demographic changes will have major effects. Millennials, the largest US generation, will be approaching age 50, while the last of the baby boomers will all be at retirement age.

“Artificial intelligence and virtual reality are expected to be mainstream. Automation will impact the labour force.

“Environmental disruption will likely continue, and sustainable investing will be mainstream.

“Investors see these ‘mega trends’ – an ageing population, technology and automation, diminishing resources –  creating opportunities for the future. In fact, seven in 10 want to take advantage of these trends to seek better returns.”

UBS’s global year ahead 2020 report says it expects growth to remain muted as the world “adjusts to
new political realities”.

It adds: “We see opportunity in companies that enable and benefit from digital transformation and genetic therapies, and in those alleviating water scarcity.

“By shifting toward sustainability-focused investments, we think investors will be better positioned to benefit from what are likely to be the most significant trends over the next decade.

“Entrepreneurs also need to consider how to adapt their businesses to the effects of demographic and technological change, and potentially stiffer labour, trade, and environmental regulations.”