Stakes and chips

By Richard Pickering, Head of UK Research & Insight 

Council of State Paris

The Devil and the deep blue Channel A no-win outcome for the UK is starting to form on the other side of La Manche. The new French President is very likely (1/8) to be Emmanuel Macron – a pro-EU former banker, who has described Brexit as ‘a crime’, and is open about his intention of luring British businesses to Paris. Negotiations with Macron will not be an easy ride. The alternative is Marine Le Pen – a fiercely anti-EU right winger, who on the one hand, is likely to be sympathetic to the UK’s position, but on the other has the potential to significantly destabilise Europe. The political choice is relatively binary, but the economic outcome offers few rays of light. Qui vivra verra…

Mixed fortunes The announcement of the General Election is likely to be well received by those invested in UK property. The NAREIT index is down 17% on its pre-referendum position, with REITs suffering from both a domestic focus and the pro-cyclicality of property returns. However, if, as many believe, the General Election will bring some stability to the UK, and the pound continues to rally over the months to come (highest since October at $1.29), then these fortunes may continue to change. With fixed income yields continuing to fall (10-yr gilt yield down 160 bps in the past two years), a healthy spread has developed for prime property yields (1.75% – prime City over typical BBB). Meanwhile, continuing discounts to NAV provide stimulus for M&A, with Kennedy Wilson Europe and Market Tech providing recent examples

Shaping regional infrastructure The CBI has called for investment in regional infrastructure, citing a £175bn benefit to the economy realised through associated productivity gains. To achieve this it sets out priorities including: North East (Newcastle Airport), North West (Northern Powerhouse Rail), Yorkshire (alleviating congestion), West Mids (M6 capacity), East Mids (freight capabilities), South West (ports), South East (Cambridge-Oxford link), and London (outer London economic hubs). Through addressing these, it is hoped that the wide productivity gap between regions will fall, with real estate values often becoming indirect beneficiaries. Meanwhile the biggest ticket item, HS2, inches further forward this week, with French operator SNCF throwing its hat in the ring for the operating contract. At the same time, rumours emerge around the strength of the Government’s commitment to the project post-election.

Chip and whisky Much has been written about the threat to human jobs posed by robots. Elon Musk’s new philosophy: if you can’t beat them, join them! His new venture ‘Neuralink’ has an immediate mission to tackle brain injuries, but a longer term ambition to enhance human intelligence through neural implants, which one day may enable humans to access the internet directly. Less ambitiously, subcutaneous NFC / RFID chips are already being used in offices to open security doors, turn on lights, pay in staff canteens, and use secure printers. To this end, startup hub Epicenter in Stockholm has already implanted 150 workers, promoting the activity with ‘Chip & Whisky’ afterwork drinks. Sounds fun. As workforce diagnostics become more widespread, how long will it be before one needs to become a cyborg to use the coffee machine? Or perhaps before one becomes the coffee machine.


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