'EU will lose more from Brexit than Britain' says leading investor at French firm

Brexit generated a knee jerk reaction.  Quantitative easing reappeared, the Bank of England halved the bank rate to 0.25pc, revived the asset purchase scheme by adding to the tally another £60 billion of gilts and £10 billion of corporate bonds.

UK interest rates are the lowest since 1705.  Japanese bonds have negative yields for the first time since 1870.  

Negative bond yields abound.  In this upside down world in Denmark, some homeowners receive, rather than pay, interest on their mortgages each month.

With the die cast, we have uncertainty as to whether it is a “hard die” or a “soft die”.  

Three of the four freedoms of the European Union – free movement of capital, people and goods – worked well. But the fourth freedom, the free movement of services, did not.

Have any of your children been able to become ski instructors in certain continental ski resorts?

It is not really a single market: there are different languages, for example, so printed packaging materials and instruction manuals have to be in all of them.  

Plug sockets vary widely and laws are different in each country.  

Whether Brexit is hard or soft, commerce will continue.  The member states of the EU are members of the World Trade Organisation, so if it is hard, we can trade on under preferential trade agreements.  

Given imports of goods a year from the EU exceeded exports by £85 billion in 2015, those corporate vested interests will speak loud within the Union as jobs will be at risk if draconian measures are taken.

One thing that will not stop is those secular growth trends extant in the world economy that we have observed before.

One hundred percent of taxi rides in 2014 were in yellow cabs in New York, for instance.  Thanks to Uber, Lyft and others, that figure has declined to 50pc today.  

Technological development leads to better informed consumers, who via e-commerce, increase competition, which lowers prices.

“In our industry, there is tremendous fragmentation of consumers, media,  competitors and routes to market and its happening simultaneously. It’s like  a complex 4D rubik’s cube,” said Alan Jope, Unilever’s head of personal care.

If it is happening in the shampoo market, it’s happening right across the economy and society.  

If the central bankers have got themselves into a “secular stagnation” funk, it is doubtful that negative interest rates will wildly influence this trend.

Companies will have to change or adapt.  AutoTrader, which we have held since  their initial public offering, stopped printing in 2013 and moved fully online.  

They have a dominant position in their industry, like Rightmove has in property. It’s another of our holdings.  

But is it not just AutoTrader being a popular interface between car dealers and the car buyers, it is the potential of the company to take a greater percentage of the commission pool or revenues as the industry automates more through the use of big data it accumulates.

For example, it costs roughly £1,000 to sell a car in the UK second hand car market.  Of that £1,000, 40pc is labour costs.  

The other costs are advertising, real estate, stock depreciation and administration.  It takes 23 hours of labour to sell one car.  

This involves manually valuing vehicles with a lot of travel involved, as well as time negotiating deals and finance.  

Using AutoTraders’ data tools, dealers can progressively value cars online which will ultimately replace manual valuation.  

Think “webuyanycar.com”.  (Incidentally, we own shares in British Car Auctions (BCA) who own webuyanycar.com.)

If AutoTrader becomes the de facto aggregator of buy and sell orders, which it can match, they can share more of the transaction revenue, especially if they can reduce the average days per transaction.  

Using their “iControl” software, AutoTrader have demonstrated to the industry that they can reduce days stock is held down from 56 to 33 days. 

Whether those cars will have driverless features, who can tell.  However, momentum here is definitely building.  

In August this year, Singapore announced the world’s first public trial of a robo-taxi service.  

Uber and Volvo announced that they would pioneer an autonomous taxi fleet in Pittsburgh.  Ford said it would build its first mass-market driverless car by 2021.  How many yellow cabs will you spot on the streets of Manhattan by then?

John Thornhill, writing in the Financial Times in August this year, agreed that there is certainly a good economic argument for this.  

“Conventional cars are inefficient, dangerous and dirty.  They sit idle for 95 per cent of their lives, clogging up city street and car parks.  

“When moving, they smash into each other, killing 3,500 people every day around the world.  Ninety per cent of accidents are human error and cars pollute the environment, accounting for 45 per cent of oil burnt,” he said. 

 But how does a car nudge its way through a throng of people outside a football stadium?”.

The technology is advancing fast.  NVIDIA, an American semiconductor design company, is working with Volvo and their “Drive Me” autonomous vehicle programme.

 They have configured a new system on a chip, using theirs and ARM cores, that can process up to 24 trillion deep learning operations per second. Yes, trillions. 

As a percentage of GDP, UK global goods exports are heavily concentrated in the research and development, (knowledge) and high skill (know how) manufacturing.

 Mechanical machinery, cars, medicines and pharmaceuticals, electrical machinery, aircraft and miscellaneous and scientific machinery account for 50pc of the total.  

The UK service economy is becoming ever more complex and interconnected.  

“In 2013, 40.3pc of all UK information and communications technology turnover originated in London and more than half the growth in this sector in the past five years had been in London,” according to The Flat White Economy, by Douglas McWilliams.  

Near Old Street roundabout, now nicknamed Silicon Roundabout, has grown an information technology hub and a boom area due to scaling and networking effects, a readily available workforce and a high level of creativity.

“At one point, Shoreditch was said to have the highest concentration of art galleries in the world as well as a plethora of clubs and trendy bars.  There are 38 clubs within 300 yards of Old Street Station”, said Douglas McWilliams in his book. 

We have often reiterated our overriding investment mantra that “things will not necessarily become better or worse, but will become different”.  

Whether a soft or hard Brexit, the EU has more to lose than Britain in terms of goods traded.  

As James Dyson espoused through the referendum debate (if you can call it that) – his eponymous company exports far more to the rest of the world – 81pc – than Europe – 19pc.

We’re number one in Germany and France – but it’s small and the real growing and exciting markets are outside Europe.”

Nigel Thomas oversees the £3.8bn AXA Framlington UK Select Opportunities fund

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