Investment Strategies
BREXIT COUNTDOWN: Parliament Votes - Wealth Management Reactions

Votes by MPs this week sought to keep open the prospect of a negotiated deal. A bid to stop a "no deal" Brexit was defeated, and that outcome remains a possibility. Wealth managers ponder the implications.
Late on Tuesday this week UK legislators voted against an attempt
to prevent a “no deal” Brexit (in which the country would leave
the European Union without a free trade deal, relying on terms of
the World Trade Organisation). Uncertainty about what sort of
Brexit deal the UK will get continues to worry the wealth
management sector. The UK is due to leave the EU on 29 March.
In reaction to the parliamentary actions, here are comments from
the industry.
John Barrass, PIMFA’s deputy chief executive
PIMFA continues to reiterate strongly that a "no deal" situation
should be avoided. We view the transition arrangements enshrined
in the draft Withdrawal Agreement rejected by Parliament as being
the minimum necessary to allow for smooth changes and a one-step
Brexit, as required by our members and for which we have argued
persistently for a long time. This will allow the firms to make
appropriate alterations and develop suitable strategies
post-Brexit to help their clients plan for their financial
futures, ensuring minimum disruption and maximum continuity to
the essential services the firms provide to help individuals and
families.
Geoffrey Yu, head of UK investment office, UBS Global
Wealth Management
We continue to see, as indicated this evening, that there is a
majority for preventing no deal, yet this scenario remains the
default position. The market was clearly not cheered by a result
that legally keeps no deal on the table, given that sterling has
responded by surrendering some of its recent gains. Investors
would have appreciated a more conclusive view on rejecting such
an outcome. All eyes will turn to the EU as the question now
becomes what is achievable in new negotiations. As things stand,
an extension is not entirely unthinkable.
Terence Moll, chief strategist at Seven Investment
Management
On the surface, the possibility of a no deal Brexit has risen.
Even if it is an outcome that Parliament has rejected, as we get
closer to 29 March no deal becomes less unlikely, if only by
mistake. To make matters worse, the Prime Minister has promised
something she claimed was impossible a few weeks ago –
renegotiation of the Withdrawal Agreement. Meanwhile, the EU
instantly rejected reopening negotiations.
In reality, the spread of outcomes remain as wide as ever. For
starters, Parliament feels it should have been able to give a
steer to the government long ago. It is finally learning how to
flex its muscles on Brexit. Better late than never. Also, this
was an opportunity to patch up a brewing civil war within the
Conservative Party while allowing Labour more space to not make a
decision. Think temporary “win-win”. But as we get closer to the
March deadline, there will be less space for this kind of
indecision.
“The Prime Minister has promised another Commons vote in
mid-February, possibly on the 14th. What exactly might she bring
back to the table? Behind the EU’s bluster, it's an expert at
kicking cans down roads. If the UK thinks the way around an
indefinite backstop is some technological solution at some point
in the future, maybe the EU might be open to agreeing on what
kind of parameters it would expect these solutions to meet. (An
example is explained in more detail here.) Such parameters “could
involve test runs, agreed levels of border security (such as
maximum levels of smuggling) and milestones for building the
necessary infrastructure for behind-the-border controls.” It’s a
long shot but we shouldn’t reject the idea of an updated
Withdrawal Agreement.
“In the past month, the currency markets seemed to agree with our
view that a consensus was building around taking no deal off the
table. The trade-weighted pound has moved up over 4 per cent.
Last night’s (Tuesday’s) events haven’t moved the market’s
thinking by much. We still think that no deal won’t happen but
can’t rule it out yet. We remain overweight the pound in the
belief that Brexit won’t be disastrous but are not yet ready to
position for a sustained rally in UK equities so remain
underweight."
Charles Hepworth, investment director at GAM
After Sir Graham Brady’s amendment – to try and re-negotiate the
Irish backstop with alternative arrangements even though the EU
has ruled that out – sneaked through with a slim majority, it is
back to a game of chicken with the EU, in a bid to try to
re-negotiate something that has already been agreed. You could
not make this up – essentially May has been told to not allow a
no deal outcome at the same time as being tasked with a doomed
re-negotiation that risks a no deal outcome.
Judging by the reaction of sterling to the voting outcome – which
fell by 0.6 per cent against the US dollar – the odds of a no
deal outcome have somewhat risen. In our view, this is all
becoming exceptionally tedious. May’s original deal will likely
come back to the House unaltered and the choice will then be
between that or a no deal Brexit. As uncertainty prevails, UK
assets are almost impossible to trade.
Bethany Payne, global bonds portfolio manager at Janus
Henderson
The pound retreated as hopes of an extension to Article 50 were
slashed. On Tuesday 29 January, Parliament voted against taking
control of Brexit proceedings for at least the next two weeks as
Parliament failed to support the Cooper Boles amendments [to
block a no deal Brexit]. Theresa May must now return to Brussels
on a wing and a prayer to renegotiate the Irish backstop.
Currency markets reacted negatively as this is currently seen as
an impossible task. The EU aren’t seemingly willing to re-open
the Withdrawal Agreement and the so called UK ‘Malthouse
Compromise’ for a facilitated customs union and technological
solutions to avoid a hard border in the island of Ireland would
continue to just be a re-run of previous unsuccessful
negotiations. While a no deal scenario is still unlikely, these
developments increase the risk of accidentally leaving the EU
without a deal and plans may intensify from both sides to manage
that outcome.
The successful Brady/May amendment did, however, provide much
requested clarity to the EU that there is a majority in the UK
Parliament for the Withdrawal Agreement if there is an agreed
alternative arrangement to the Irish backstop. This leaves the
ball in the EU’s court to choreograph a revised deal that would
guarantee support in the House of Commons. If, however, “nothing
has changed” in two weeks and there is a failure to have a
revised deal ratified by 13 February, then MPs will have another
opportunity, on 14 February, to vote to gain control of the
Brexit process. An extension of Article 50, to allow time to pass
legislation, also now seems increasingly likely.