Macroeconomic data to play second fiddle
Neil Williams, group chief economist, Hermes Investment Management
The UK economy will of course ‘survive’, given its entrepreneurial flair, increasing focus on non-EU trade, and likely policy accommodation by the Bank of England and UK Treasury. However, getting to the next stage looks a long, drawn-out ‘can of worms’, leaving considerable uncertainty for UK assets and markets. The extent of this damage now rests on the manner of the exit.
The mark-down on assets would surely be greatest in the case of a ‘hard exit’ – entailing an acrimonious departure, lower trade, lower migration, and recession – than the more probable ‘softer’ version.
But, even a ‘soft exit’ to a Norway or Switzerland-style associate membership will probably need several years just to end up close to ‘square one’. Greenland’s soft exit in 1985 had taken three years. We, larger and 43 years entwined in the European project, will need even longer.
Either way, macroeconomic data is likely to play second fiddle to political pronouncements for a while as markets try to get to grips with which scenario will be more likely..
Globalisation under seige
Joe Amato, president and chief investment officer—equities, Erik Knutzen, chief investment officer—multi-asset class, Brad Tank, chief investment officer—fixed income, Neuberger Berman
A more pessimistic reading of the vote would see it as one more crack in the edifice of international political and economic co-operation built over the past 70 years. Anti-EU parties in countries like France, Germany and Italy may take heart from the result and attempt to further exploit the euroskepticism increasingly evident in opinion polls across the Continent.
But to us this merely confirms that globalization is under siege, a trend already well-advanced and understood by financial markets. Beyond Europe, a big effect on the outcome of the forthcoming presidential election is unlikely—and besides, as former Treasury Secretary Hank Paulson told Brad in an exclusive interview at our CIO Summit this week, neither the Republican nor the Democratic candidate is promoting a positive view of global trade and investment.
Most importantly, this vote will probably exert only a marginal effect on global economic fundamentals, which remain stable but weak. We still live in a slow-growth, low-inflation, low-interest rate environment, characterized by sluggish productivity and investment. “Brexit” has been a tail risk stalking markets in the same way that the oil price, the strong dollar and concerns about China created volatility back in January and February, but we think its implications are overstated. For that reason, we again stress the importance of looking through the noise to focus on fundamentals and watching for opportunities to add risk to portfolios.