Chinese firms and investors looking to expand further internationally enjoy a unique situation in the United Kingdom. Following the Brexit result in favor of leaving the European Union, the pound sterling has fallen 19% against the dollar. The currency is at a 30 year low of $1.21:£1 and extremely volatile, creating a generally negative outlook. Conversely, the FTSE:100 (built of primarily export-oriented companies) has risen directly resulting from the depreciating currency. Despite the performance of the index appearing strong in sterling terms, it is still under performing in dollar terms. But does a falling currency actually affect China? Will Chinese firms look to purchase companies within the EU at a reduced price?
Historically, when the U.S dollar was relatively strong, American companies quickly pushed through mergers and new acquisitions. With the impeding Brexit, many Chinese companies may look to continue the recent trend of buying famous UK companies and brands. This trend may take a while to occur as many companies may wait for the pound to fall further (as the currency is expected to do so). Likewise, it is hard to predict which companies may receive the most interest from Chinese firms. Utility companies may be seen quite favourably, as they offer an essential service.
The stock exchange is not the only investment market that Chinese investors will be interested though, with real estate looking even more appealing. While large Chinese firms may have the cash to purchase entire companies, much smaller private investors may prefer to deal in real estate. With house prices in London being at extremely high levels, the devaluation of the pound will make British houses cheaper for foreign investors. The overall opinion of property experts consists of the belief that in the short term prices may start to fall throughout London. This further creates ideal opportunities for outside investors, with more attractive prices starting to appear.
However as with all investments, the future cannot be predicted. While the pound has been devalued considerably, the value will only be realised if the currency recovers. Many investors may also feel that the currency hasn’t quite hit its floor yet, and would prefer to wait for an even better opportunity in the future. Considering no formal proceedings have started for the United Kingdom to officially leave, the value for Chinese investors could still continue to grow.
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