Tokyo Summit: Investors sound warning over UK political uncertainty and Brexit

Investors fear a Labour government opposed to private infra ownership might be 'canary in the coalmine' for similar populist movements across Europe.

Investors at the Infrastructure Investor Tokyo Summit have warned that political uncertainty is an increasing risk in the UK, and that some international investors are avoiding the country for the time being.

“While there have been asset sales in the UK that have reached good valuations, we are definitely seeing an impact on liquidity,” Harry Seekings, director, infrastructure at InfraRed Capital Partners said at the Summit.

“International investors are giving a wider berth to the UK at the moment than they might otherwise have done in previous years. And we’re also seeing some large-scale owners of regulated assets in the UK, for example, attempting to sell down some of their exposure to the UK. We’ve seen some processes which, frankly, have failed because of the lack of liquidity.”

Seekings went on to say that Brexit itself was “not a concern”, but that political uncertainty and potential upheaval could cause problems.

“There clearly is a risk that the current polarisation of the two main political parties in the UK unsettles the parliamentary landscape,” he said. “If there is a change of government, the Labour Party is pretty much against private ownership of infrastructure assets. And that is a political risk that investors are facing at the moment.”

This was echoed by Graeme Dunbar, senior investment director at Aberdeen Standard Investments. “The UK has historically been one of the safest and most stable democracies in the world,” he said. “The reality is now that isn’t the case. You see the rise of populism with both regulators and government and I think that’s going to continue in the immediate term.”

He argued that investors would be able to deal with the consequences of a decision on Brexit, but that ongoing uncertainty was proving difficult to deal with.

“The impact to date on operating businesses, even GDP-linked ones, has been actually very minimal, and we’re still seeing assets sold at very attractive prices,” he said. “The question we get asked a lot more is what happens if, say, as a result of Brexit, does [Labour leader] Jeremy Corbyn get in? And there’s the currency issue. We hope the politicians make a decision and we can all move forward from there.”

Rishi Pabari, head of investor relations at iCON Infrastructure, argued that liquidity was strong and that there was “no shortage of demand [for UK assets] from global investors”, notwithstanding Brexit. However, he agreed that political uncertainty posed a challenge.

Seekings also warned about the impact on infrastructure of rising populism in other countries and regions. He argued that lessons should be learned from the Brexit experience: “One of the questions we ask ourselves is if the UK is the canary in the coalmine on this? We’re seeing a rise in populist politics in other markets in Europe, and globally as well. The question for us as a manager is how [do] we respond to this?”