Ruth Seldanha: It is an extraordinarily difficult time to be an investor, especially in the UK where political turmoil is compounding economic uncertainty and this in turn has led to a sharp drop in asset prices. Dan Kemp, Global Chief Investment Officer at Morningstar Investment Management, is here today to help us understand what is happening in the UK, especially for investors outside the UK. Dan, thank you so much for being here today.
Dan Kemp: Ruth, thank you very much for talking to me. It’s great to be with you.
In times of chaos, like the UK now, focus is important
Saldanha: There has been a lot of happening in the UK this month and a lot of it seems a bit chaotic to us outside of the UK. So, what part should we focus on, as international investors?
Kemp: Well, you made a really good point, Ruth, that it’s messy. And wherever you have clutter, your focus really matters. Because all too often when we go through these challenging periods, whether it’s political or economic or a combination of the two, our attention is drawn to the moment-by-moment, day-to-day movements in the news cycle. But as investors, you know, we have to take a completely different perspective. We have to raise our eyes from the everyday details to the horizon, and think about the long-term, and that really is where our focus should be, not on everyday life, but really in the years before we are.
Watch for a possible fall from the UK
Saldanha: What are the potential repercussions of what is happening in the UK on global markets?
Kemp: Well, it is always difficult to fix any conclusion on what is happening in a particular market. As you know, global markets are very diverse, made up of many, many different countries and different economic situations. But when we see one crisis area, the danger is that people create stories in their heads that drive investments. These stories can have indirect consequences. As people are worried about borrowing in one country, they may become anxious about borrowing in another. And that’s why it’s so important to focus on the long-term, as I said, but also to think about the evaluation. When we think of investing, valuation is everything. So, it’s not about news flow, what’s happening in certain markets. It’s about evaluating the asset you’re looking at, who you’re considering and whether that presents a good long-term opportunity or a weak long-term opportunity.
The UK will falter, and things will turn back to normal
Saldanha: Now, some people were looking at the worst case scenario. Others were thinking of the best. Often the truth is somewhere in the middle. So, what is the baseline in your assumptions for what might happen next?
Kemp: Well, our bottom line when we think about investing should always be that things are really going to falter – that’s a British phrase, but I hope it will carry over – that things will falter, they will be relatively normal and prices will return to their fair value over a long period of time. But in this scenario, as in every scenario, you can’t just think about obfuscate the outcome as I describe it. You have to think of a wide range of possible outcomes, because if you focus too much on any one outcome, whether it’s muddled or something else, you’ll probably be surprised. And when investors are surprised, when they tend to make mistakes, then they tend to do the wrong thing in a panic. Thus, in order to avoid surprise, you need to consider not only your base case, but the wide range of possible outcomes around it.
This is the time to invest in the UK
Saldanha: So, finally, in your opinion, how should international investors view the UK as an investment destination at the moment?
Kemp: Well, maybe I’m going to be a little controversial here, Ruth, and say it’s a much better destination for international capital than it was a few months ago. Often times when investing the worst times are actually the best times to invest. When you feel the worst, you are often the best. And so, for an international investor and you’re looking at the UK right now, of course you’ve seen the value of the British pound go down. So, everything is for sale, and there are some really good opportunities to get quality assets at low valuations, especially when comparing those valuations to other markets around the world like the US for example. So, it is definitely not a time for random buying. We’re not seeing very low prices yet, but this is a much more attractive time to invest in the UK than it was just a few months ago.
Saldanha: amazing. Thank you so much for joining us today with your opinions, Dan. For the Morningstar, I’m Ruth Saldanha.
Originally published at San Jose News Bulletin
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