Industry Views On Brexit

With thanks to Simon Hoyle and Professional Planner Magazine


In light of UK voting in favour of leaving the EU, a leading fund manager says investors should not panic.

Investors should realise that it will still take some time for the changes to take place, says George Lucas, managing director Instreet.

“In fact, the UK would probably remain a member of the EU for several more years. In the meantime, UK politicians could drag out the process or try to find a solution that replicates EU membership in all but name.

“This also means there would be time to clear up some of the uncertainties about the wider impact of Brexit, notably the arrangements which would govern UK trade with the remainder of the EU and the rest of the world.

“We see little effect on these trade partnerships. Europe is Britain’s biggest trade partner but, as a percentage of trade, this has reduced dramatically since the global financial crisis as Europe has stagnated whilst China, the US and emerging markets have grown.

“And finally, as expected the markets have reacted negatively, driven by fears about the British economy. This may also cause further delay with a US Fed hike and induce additional monetary easing elsewhere including from the European Central Bank and Bank of Japan,” said Mr Lucas.

T Rowe Price


  • Markets worldwide are bracing themselves for a sustained period of volatility after the UK voted to leave the EU in yesterday’s referendum.
  • British assets will be hardest hit in the coming days, but the impact of this historic vote will be felt all over the world as the EU and UK begin what could be messy and fractious proceedings.
  • The UK now faces a huge challenge in not only completing the complicated process of separating from the EU, but also in negotiating new trading agreements—with both the EU itself and the UK’s other partners across the world.
  • However, the turbulence of the period ahead could also create significant opportunities for bottom-up, fundamental investors.

Eaton Vance

Chris Dyer, director of global equity, portfolio manager, Eaton Vance: The UK vote to exit the European Union ushers in a new era of uncertainty that is likely to persist for some time. The significance of this event cannot be overstated from political, economic and social perspectives. This is indeed uncharted territory.

The repercussions of this vote for the future of the European Union could be profound. We are already seeing calls for a similar referendum in the Netherlands and France. Spain has presidential elections this weekend, while Germany, the Netherlands and France will elect their leaders in 2017. Will Angela Merkel, the glue that has held Europe together for the past decade, retain her position to lead the continent through its next challenge? Or will populism and nationalism splinter the frail union?

What’s next?

The UK has two years to negotiate the terms of its exit from the EU. During this period, we believe:

Companies will reduce investment and hiring, as they await the new rules to be written.

Consumers in Europe will likely curtail spending in the uncertain environment.

This will lead to a recession in Europe as a base case, while it is premature to predict whether this predicates a global recession.

In the coming hours and days, we will see various central banks comment on their commitment to do everything within their powers to promote stability. However, the market is already pessimistic about the diminishing effectiveness of each central bank’s incremental initiative. We are likely to see fiscal stimulus from governments to counteract the drops in corporate and consumer spending.

We expect that the relative stability of the US and Japan to be a benefit to returns versus Europe over the near term. From a sector perspective, financials face the greatest uncertainty and headwinds in the near term, as new regulations are negotiated and financial conditions tighten. Health care stocks, which have already underperformed significantly over the past six months, now appear very attractive and should be less affected by the prevailing political and economic uncertainty.

The conditions discussed above are reflected in the share price and currency moves we are seeing in the market today.

Bottom Line: Indiscriminate selling results in mispriced equities, which creates investment opportunities for long-term investors. As in any market environment, there will be winners – companies that are positioned to exploit their competitive advantages in order to grow and gain share at the expense of weaker competitors. In the global equity portfolios, we are focused on identifying and investing in these companies.


After a night of high drama the British public voted to end their 40 plus year relationship with the European Union (EU), by a margin of 52% to 48%. With turnout high at 72%, the people certainly seem to have spoken.

Early indications from Thursday night suggested that the Remain camp would get the votes they needed with the sterling dollar exchange rate, the bellwether for Brexit risk, touching a high for the year of $1.50 per pound. However, as the night progressed and swathes of England and Wales voted to leave, expectations of the result turned sharply, and with it the fortunes of the pound. In turn global equity markets have seen similar levels of volatility whilst gilt and bund yields have hit new lows.

The shock of the vote will dominate initial market moves, and will clearly provide risks for the medium term.

Near term, the UK economy will be pulled lower by the uncertainty created by the referendum vote. As a result we expect the Bank of England to cut the official interest rate to zero, from 0.5%. If they feel the need to do more, we expect a reintroduction of quantitative easing rather than a move to lower the official rate into negative territory.

For the medium term we expect a period of greater relative calm, not least because the transition to life outside the EU will take time to negotiate. Furthermore, the leadership of that negotiation needs to be resolved. David Cameron has announced he will step down as prime minister by October, meaning that a leadership contest within the conservative party will take place over the summer. Only after this is settled – and the UK has a new prime minister – will negotiations around the EU separation begin. The time for these negotiations would likely be up to two years, under Article 50 of the Lisbon Treaty. However, we would expect informal negotiations to start ahead of the UK government formally initiating the exit process.

In short these things take time, and time can heal what at this moment may seem like a raw wound. However we should all recognise that periods of political instability create significant risks at a time when the global economy is vulnerable to unexpected shocks. In the short term this increases uncertainty in the outlook for the UK and it underlines our secular themes of rising political risk and insecure stability for the global economy.

Franklin Templeton

The United Kingdom has voted to leave the European Union (EU). What do you think will be the immediate consequences?

David Zahn, CFA, FRM – head of European fixed income, Franklin Templeton Fixed Income Group (based in London): I think yesterday’s vote will create a noticeable increase in volatility in financial markets. Sterling will probably decline, and UK interest rates are now not likely to change for some time, as this decision could prove a big hit to investors’ confidence.

Markets do not like the unknown, and a Brexit vote presents a huge amount of unknowns: not just questions about how this situation is going to play out, but even who is going to be dealing with it.

Although it’s difficult when markets are in the midst of this sort of volatility, we think it’s important, from an investment perspective, to keep a long-term focus. We will be paying close attention to what the politicians are doing; that’s who the markets are likely going to take their cue from.

Investors may want to consider taking this opportunity to think about setting up their portfolios for the long term. We think there may be some opportunities in the coming weeks and months from this upheaval because some otherwise attractive assets might be caught up in the melee.

State Street

Rick Lacaille, global chief investment officer, State Street Global Advisors: “While the vote to leave has immediate market implications, over the longer-term observers will be wary of the impact the vote has on other nationalist and protectionist movements – both in Europe and elsewhere. In Europe, nationalist parties will feature prominently in elections next year in Germany and France.

There is the potential for knock on consequences for market-moving issues like trade, labour mobility and foreign investment. How the EU strikes a balance between facilitating a swift UK exit to reduce risk as quickly as possible, and discouraging similar movements in other countries, will be important.

In the weeks leading up to the vote a range of international financial and trade bodies including the IMF, World Bank, Bank of England, and WTO laid out concerns of a UK exit from the EU. These included risks to global growth, trade, foreign investment and financial market stability. The exit vote realises the potential for these projections to unfold.”

Michael Metcalfe, head of global macro strategy, State Street Global Markets: “In the three months before the referendum it was noticeable that international investors increased their holdings of UK equities and gilts in spite of the uncertainties created by the vote. The only place where investor behaviour changed was in the currency market where investors hedged their currency risk.

While this hedging has proven prescient given sterling’s depreciation following the vote, the key question now is whether international investors will now seek to reduce their underlying holdings of UK assets.

If the uncertainty following the Leave vote persists and because investors bought rather than sold UK assets before the vote, there is a heightened risk of outflows from both UK equities and Gilts.

We will also be watchful of contagion into European assets, especially the Euro. Even though the ECB is expanding its balance sheet aggressively, it is noticeable that investors have reduced their bets on a continued depreciation of the Euro.

If the Leave vote refocuses market attention on the potential political divisions within Europe, there currently appears to be little political risk premium priced into the single currency and with monetary policy encouraging Euro weakness as well, we would anticipate the downtrend in the EUR against the US dollar to resume.”

Also thanks to Martyn Rose, Morgan Stanley

“I heard a financial markets commentator on the radio this morning saying this was a political crisis not a financial crisis and he would be looking to pick up listed assets for the long term. And when you think about it, our exports to the UK rank in dollar terms behind our exports to Thailand, Hong Kong and Singapore!!

There is a lot of water to flow under the bridge before the Brexit is all sorted out and first the government actually has to pull out of the EU under Article 50. FYI – a petition has been started in the UK to have another referendum and that already has nearly 4mill signatures. Not sure if that will achieve anything though.

As I have said before and no doubt will say again, you take advantage of what the market gives you. And the All-Ordinaries index was down 56 points last week or just over 1%, we were down 143 points or almost 3% the week before!!”