The UK continues to be Europe’s most attractive location for international investment into Financial Services, with 99 projects recorded in 2019, according to EY’s latest UK Attractiveness Survey for Financial Services.
The UK has consistently been the number one location for Financial Services FDI (Foreign Direct Investment) for the last twenty years, and 2019 was the third strongest year in the past decade for UK Financial Services. The UK registered more than double the projects of Germany, which came in second place with 43.
Future attractiveness post Covid-19
Investor sentiment suggests that the UK is expected to continue outperforming the rest of Europe in attracting post-pandemic Financial Services investment.
2019 levels were still the third strongest this decade and the UK has extended its lead over the rest of Europe despite Brexit.
The UK extends lead over Germany
The UK maintained its share of FDI projects in Europe and extended its lead over Germany, which had the second highest share of FDI. France, which has ranked third for the last five years, is now fourth behind Spain.
London also remains the dominant European city for attracting FDI for Financial Services with 67 projects. Paris is the second most popular city with 29 projects and Madrid third with 24 projects. Dublin attracted 23 projects and Frankfurt, 21 projects.
The year on year trends show that in 2018 Frankfurt had a spike in projects as many firms set up European operations in advance of Brexit. Paris and Dublin remain broadly consistent year on year and Madrid continues its growth in FS FDI.
US remains key source of European FDI
The largest source of Financial Services investment into Europe in 2019 was again the US, which accounted for 27% of all Financial Services FDI. The second largest source was the UK.
In terms of investment just into the UK, the US again was the chief source, accounting for almost a third (32%) of all UK Financial Services FDI. The largest investment projects in the UK were also from the US.
What’s important for investors post Covid-19
Omar Ali, UK Financial Services Managing Partner at EY said: “The Covid-19 crisis will of course impact all geographies and economies – whether to a lesser or greater degree – and no industry is immune. However, as one of the largest Financial Services hubs in Europe, the UK financial sector is well placed to support the recovery effort and drive growth. London’s dominance as the preeminent European financial centre remains unrivalled, and it’s also very encouraging to see other parts of the UK – like Scotland and Leeds – attract significant investment and create thousands of jobs. While it’s unclear at this early stage how future projects will be impacted by the pandemic, investor sentiment from April this year suggests UK Financial services is in a strong position to adapt to the changes and continue to be a leading destination for overseas investment.
“However, we should not be complacent. It is not by accident that the UK is a favoured market within Europe for FS investors – this is the result of decades of work to build and strengthen the sector and, with Brexit negotiations ongoing, this is a critical point in history for Government, regulators and the industry to come together to make sure the UK retains its position as a world-leading centre for Financial Services.
So, Financial Services Industry, where do I invest?
Many economists are struggling to call the bottom of the global downturn or forecast what shape and duration a recovery might take. Most comments, like below, have lots of ‘probably’ and ‘doubt’:
“Probably Q4 or Q1 of 2021, that's when we’re going to see the engines of the economy churning along,” “But I doubt that before that we're going to see any meaningful economic growth in Europe, simply because we have a lot to sort out.”
Some economists signal that the post-crisis landscape could trigger a deglobalization trend, weaker company earnings and higher corporate debt.
In terms of growth, the International Monetary Fund announced that the world would likely experience the worst recession since the Great Depression this year, with global GDP contracting by 3%.
However, even amongst all this negative news and many uncertainties, people are still spending and hence there is money to be made.
There’s a new category called ‘stay-at-home stocks’. Companies like Zoom, for example, have gone up by 106% since the beginning of the year. Microsoft, Amazon just hit a record high and Alibaba is the same thing.
We still advocate a sensibly diverse portfolio, but there is definitely a trend developing that is erring away from the traditional models. Don’t get left behind, minor changes may be all that’s needed.