Fancy a break or investment in UK? The time's ripe with a pound plunge

dubai - GCC investors and fund managers can make fresh investments in UK assets at cheaper price

The British pound plunged below $1.23 on Tuesday, brightening prospects of wooing a new wave of investments from the GCC where currencies are pegged to the greenback.

The pound sterling's latest selloff at a new 31-year-low followed reports that Britain could lose £66 billion of tax revenues each year if the UK takes the plunge with a hard Brexit.

Sterling has also lost fresh ground against the euro, down 0.33 per cent to ?1.106, boosting the London stock market to near-record highs.

The FTSE 100 has hit a record high after moving above 7,122.7 to reach 7,129.7 points - though it must close above 7,103.98 to achieve a record closing level.

"The fall of sterling to the bottom level gives 'averaging opportunities' to GCC investors and fund managers - who had faced a tough time during Brexit due to a drastic fall in their asset valuations on UK investments - by making fresh investments in UK assets at cheaper price," said Sajith Kumar P.K., CEO and managing director, IBMC Financial Professionals Group.

"We still see a downside risk in the coming months. The pound-dollar exchange rate can come down below 1.2000 or 1.1500. Any upside may be below 1.3000," said George Prasad, senior manager at Century Financial Brokers.

Kumar said GCC investors would be more encouraged to enter the UK now that most regional currencies are at a record high against the pound. "Investors are keen for more diversifications during the crash of UK assets as they are getting investment opportunities in multiple assets."

However, GCC tourism and real estate sectors may get negatively affected with an expected drop in the number of tourists and volume of investments from the UK.

On the other hand, a weak sterling seems to have boosted tourism flow from the GCC as visitors find the UK attractively cheap while British holidaymakers find Gulf more expensive.

"Another point is that GCC investors will not be in a position to exit from their investments as long as the pound remains at such bottom levels," said Kumar.

Analysts said with US rates expected to go up well before UK rates and the prospect of more quantitative easing in the UK, it was inevitable for sterling to come under further pressure.

Following Friday's flash crash, sterling exchange rates have been significantly weaker. Early hours of Friday morning saw a surprise plummet in pound value to $1.171. While some say the sharp drop was undoubtedly due to computerised high-frequency trading, most market analysts are still unclear on what exactly caused the flash crash by six per cent as increasing certainty that Britain was headed for a hard Brexit weighed heavily on pound's recovery attempts.

Analysts said the pound's crisis has raised pressure on those UK firms that rely on imports. A weaker currency makes imports more expensive. On the other hand, it makes UK exports more competitive and some companies have reported a pick-up in overseas sales since the British vote to leave the European Union in June knocked the sterling.

While the weak pound makes overseas holidays more expensive, there are also worries that the sterling's fall will be felt at the tills as retailers pass on their higher costs.

- issacjohn@khaleejtimes.com