Ruth Saldanha: It's an unusually tough time to be an investor, especially in the U.K. where political turmoil has been heaped upon economic uncertainty and this in turn has led to sharp falls in asset prices. Morningstar Investment Management's Global Chief Investment Officer, Dan Kemp, is here today to help us make sense of what's happening in the U.K., especially for non-U.K. investors. Dan, thank you so much for being here today.
Dan Kemp: Ruth, thank you so much for speaking to me. It's great to be with you.
In Times of Chaos, Like the U.K. Now, Focus is Important
Saldanha: There's been a lot going on in the U.K. this month and a lot of it seems a bit chaotic for us outside the U.K. So, on what part should we, as international investors, focus?
Kemp: Well, you raise a really good point, Ruth, that it is chaotic. And where you have chaos, your focus is really important. Because so often when we go through these difficult periods, whether they're political or economic or a mixture of both, our attention is dragged into the moment-by-moment, day-by-day moves in the news cycle. But as investors, as you know, we have to take a very different perspective. We have to lift our eyes from the day-to-day minutiae to the horizon, think about the long term, and that's really where our focus needs to be, not on the day-to-day, but really on the years ahead of us.
Keep an Eye on Potential Fall-Out From the U.K.
Saldanha: What fallout could there potentially be from what's going on in the U.K. on global markets?
Kemp: Well, it's always difficult to pin any outcome on what's happening in one particular market. As you know, the global markets are very diverse, made up of many, many different countries and different economic situations. But when we see one area of crisis, then the danger is that people create stories in their heads that drive investments. And those stories can then have knock-on consequences. As people are concerned about borrowing in one country, they may become concerned about borrowing in another country. And that's why it's so important to focus on the long term, as I said, but also really consider valuation. When we're thinking about investment, valuation is everything. So, it's not about that news flow, what's happening in particular markets. It's about the valuation of the asset that you're looking at, that you're thinking about and whether that offers a good long-term opportunity or a poor long-term opportunity.
The U.K. Will Muddle Through, and Things Will Normalize
Saldanha: Now, some people have been looking at the worst-case scenario. Others have been considering the best. The truth often is somewhere in the middle. So, what's your baseline in your assumptions of what might happen next?
Kemp: Well, our baseline when we're thinking about investment always has to be that things will genuinely muddle through – that's a U.K. phrase, but I hope it travels – that things will muddle through, that they will be relatively normal and that prices will return to their fair value over a long period of time. But in this scenario, as in every scenario, you can't just think about the muddle through outcome as I put it. You have to think about a wide range of possible outcomes, because if you focus too much on any one outcome, whether it's muddle through or anything else, it's likely you're going to be surprised. And when investors are surprised, that's when they tend to make mistakes, that's when they tend to do the wrong thing in a panic. And so, in order to avoid being surprised, you have to think about not just your base case, but that wide range of possible outcomes around it.
Now's a Good Time to Invest in the U.K.
Saldanha: So, finally, in your opinion, how should international investors view the U.K. as an investment destination right now?
Kemp: Well, I'm probably going to be slightly controversial here, Ruth, and say that it's a much better destination for international capital than it was a few months ago. So often when investing the worst of times are actually the best of times for investment. When it feels the worst, it's often the best. And so, for an international investor as you're looking at the U.K. at the moment, then of course, you've seen the value of Sterling fall. So, everything is on sale, and there are some really good opportunities to pick up, high-quality assets at lower valuations, particularly when you compare those valuations to other markets around the world like the U.S. for example. So, it's certainly not a time for indiscriminate buying. We're not seeing very, very low prices yet, but it's a more attractive time to invest in the U.K. than it was just a few months ago.
Saldanha: Great. Thank you so much for joining us today with your perspectives, Dan. For Morningstar, I'm Ruth Saldanha.
