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New year brings a change in Britain's trading relationships

In January, investors often look for new themes – giving the calendar more respect than it deserves. But for UK investors, the new year marks a change in Britain’s trading relationships and potential for a fresh perspective from international investors. UK shares have been hit by uncertainty and what many saw as a messy withdrawal from the EU. Relative to other major markets, British shares have lagged materially. Will 2021 bring a catch up?

Adding to the sell-off by international investors, UK wealth managers have typically rebalanced to cut UK exposure. For many that proved a good call, though stock selection could have driven a better than index result in UK equities and much worse in the US if the big tech FAANG stocks were missed. But now, with potential for further Sterling recovery combined with the risk of further US Dollar weakness, domestic assets might begin to look attractive again. Corporate buyers could be the first to move in on the opportunity.

The UK has tended to be open for change of control – in many other countries, hostile takeovers face more barriers. Cheap money is readily available to listed companies and private equity, and could drive more takeovers. UK listed with global exposure could be a target. There may be break-up opportunity for groups that are growing in the US or Europe but are held back because of their London listing and predominately UK share register.

The UK also has higher exposure to mining and resources businesses than some other markets, potentially benefiting from inflation and Dollar weakness. If stockmarket institutional buyers are slow to return to UK equities, corporate buyers might move first. And the UK may see some strongly growing private businesses come to market this year. Time will tell whether Brexit works for the UK, but it has historically been a more international and dynamic economy and it seems overlooked by many investors.