That being said, all the following views we expressed in our blog from February, remain intact.
The Brexit issue has been more problematical for the U.K. domestic economy than it has for any other part of the world, and we believe that will continue to be the case. We have very little exposure to the U.K. domestic economy in our international equity portfolios. The U.K. companies that we own are global, with suppliers, customers, and production facilities around the world. To the extent that Brexit will require some adjustments in their operations, these companies may be no more advantaged or disadvantaged than their competitors who also do business in the U.K. and Europe.
The Benefits of a Diversified Business
Companies with geographically diversified businesses are used to working with widely varied and continually evolving regulations on everything from product safety, to packaging, advertising, labor, and waste disposal. They also work in a wide range of currencies and make decisions as to whether and how much to hedge them. They routinely decide whether to fulfill their supply needs with short-term or long-term contracts, whether or not they should buy the commodities they require in the spot or forward markets, whether to stockpile components, and so forth. In addition, these companies all have manufacturing facilities in various countries exporting their products all over the world.
Within this context, the issues that would arise as a result of a British market separation from the EU—such as changes in labor availability, environmental regulations, packaging requirements, and currency movements—are issues they are used to dealing with every day. Brexit is unlikely to be particularly onerous to them as a group.
Still, for those multinationals that are domiciled in the U.K., their share prices may experience short-term pressure, depending on the form of the deal or no deal. However, as we saw in the wake of the Brexit referendum in 2016, that effect was short-lived. Additionally, while the U.K.-domiciled companies we own would not be impacted by each issue in exactly the same way, the degree to which they would be affected by their particular combinations would be quite similar. None are likely to be particularly advantaged or disadvantaged. (For example, both American Proctor & Gamble and Anglo-Dutch Unilever would need to adjust manufacturing, testing, and shipping.)
A British exit from the EU would inevitably require these companies to adjust their operations, but they are accustomed to such changes as a natural part of their business. Indeed, many have already prepared for short-term disruption. A smattering of examples of the measures they have taken–which vary widely, depending on their particular needs–range from relocating quality testing divisions, to stockpiling supplies and end-products in various markets, to establishing legal entities in various jurisdictions to minimize time required to respond to the particular form Brexit takes if and when it finally happens. Over the long term, we think these companies will be able to take Brexit in stride.
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These views represent the opinions of the portfolio managers at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.