British EU exit debate scaring off investment - Hermes funds
By Chris Vellacott
LONDON (Reuters) - Political rhetoric raising the possibility that Britain may leave the European Union could already be deterring foreign investment and harming London's financial services industry, a top UK investor said.
Saker Nusseibeh, head of Hermes Investment Management, said the threat of a British exit from the EU could affect money flows and asset prices, while major institutions might consider leaving.
"We’re talking about redefining our ties with the partner with whom we do 50 percent of our trade. If that becomes a reality the market in the UK will go down. I think the (UK) treasury market will be hit because people will put more financial risk on the UK," Nusseibeh said at the Reuters Global Investment Outlook Summit on Tuesday.
Another effect could be to weaken the allure of the City of London as a base for international financial systems with rival banking and investment hubs New York, Singapore and Zurich likely to benefit.
Britain is due to hold a general election next year with the country's relationship with Europe a key issue. The current government has pledged to hold a referendum on EU membership in 2017 if it wins another term in office.
Nusseibeh highlighted the fallout from the Scottish independence referendum in September as an example of the long term damage that might be caused to the UK if it seriously considers leaving Europe.
Jitters about the Scottish result prompted some financial institutions to hold back from investing in Scotland and the effect may prove lasting, he said.
"(Financial institutions) put a permanent premium on investing in Scotland ... I think the same thing is beginning here. Even by talking about leaving the EU we are beginning to weaken the financial industry in the UK," he told the summit, held at the Reuters office in London.
This is one of the risks international investors are having to grapple with as they make plans for 2015, said Nusseibeh, Chief Executive since 2012 at Hermes, which is owned by Britain's largest pension fund, the BT (British Telecom) Pension Scheme.
Nusseibeh characterised the year ahead as "a story of a half working quantitative mechanism," in reference to massive injections of liquidity by central banks in Britain and the United States since the financial crisis.
Monetary stimulus in the United States and Britain has half worked, he said, inflating asset prices, particularly in Britain and holding off recession, but had not filtered through to tangible economic activity by boosting consumer or corporate spending.
"It has produced a lopsided recovery in the UK ... the U.S. is slightly better. Within that, emerging markets continue to be attractive because they are a long term story and I have no idea how Europe comes out of its hole," he said.
This outlook favours the U.S. dollar which is likely to remain strong because of its immunity from instability elsewhere and a unique set of home-grown advantages, he said.
"The U.S. is self-sufficient in food, water, energy and labour – and they've managed to corner the market in technological innovation ... The dollar has to be strong in 2015," he said.
(Additional reporting by Sam Wilkin; Editing by Susan Fenton)
