Hunt for growth swells drift from UK

Is Britain losing its economic influence? AFI panellists’ focus has shifted from British equities to emerging markets, reflecting developing nations’ growing presence in the global economy.

For political commentators the discussion on Britain has been one of declining global influence for much of the past half-century. In the wake of the financial crisis, many voices are prophesying a similar fate for the British economy.

Of course, the story is not so dramatic as it may at first appear. In many ways the relative decline of Britain’s economic significance only serves to underline the huge impact that fast-growing emerging markets have had in shaking up the established global order. Many would claim that such a rebalancing is not only a positive consequence of globalisation but also a necessary step towards removing some of the economic and political imbalances of the past.

As the trend becomes widely acknowledged, it is perhaps no surprise that it has grown more pronounced in investment portfolios. Looking at the historical data from the Adviser Fund Index (AFI), the theme is particularly apparent in panellists’ allocations towards British equities.

In May 2007, British equities represented 40% of the Aggressive portfolio, 42% of the Balanced and 35% of the Cautious. Since then, bar a couple of blips, these weightings have been reduced during each rebalancing, falling to 26%, 26% and 25% respectively in November this year. (article continues below)

The falls suggest that panellists have been reallocating their portfolios towards markets where they see better prospects for growth. While Britain has fallen out of favour, the Asia Pacific region has gone from representing 11% of the Aggressive portfolio, 7% of the Balanced and 2% of the Cautious to 16%, 9% and 4% respectively. There has also been a noticeable increase in allocation towards the so-called “Other International Equities” across the portfolios.

“We’re certainly less exposed to the UK than we were a few years ago,” says James Davies, an investment research manager at Chartwell and AFI panellist. “We’ve been moving towards a more glo­bally diversified portfolio.”

The reasons for this switch go beyond headline figures of economic growth. As most market participants will point out, stockmarket performance rarely reflects a country’s economic fundamentals and indeed can often undergo periods of inverse correlation.