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The Great Brexit Obsession

19.05.16

Image relative to politic relationships between Europe Union and United Kingdom. National flags on concrete textured backdrop. Brexit theme

The Great Brexit Obsession

Is the pre-Brexit hiatus a great opportunity for investors? Anti-Brexit scare stories from the IMF and the Treasury are matched by warnings of the dangers of remaining in a sclerotic EU by the Leave camp. The politicians are playing a high stakes game – for themselves – and the reality is that with either post-referendum outcome we will most likely avoid the extremes. Most of the forecasts are mere speculation, we all know the arguments by now. It is easy to be mesmerised by the uncertainty.

How important is Brexit for our investors?

Most of our clients are invested in international portfolios. Given this mix we believe the impact of Brexit should be relatively muted but mainly transmitted through currency impact. If Sterling collapses following a Brexit vote, we would expect our portfolios to see the benefit. But if the vote is Remain, as expected, then a Sterling relief rally could take place, although the reality of the UK’s cavernous trade deficit might soon put paid to that.

Net, we remain biased to overseas weightings for most people. What about European assets? Financials are most exposed either way and we are reducing our holdings here anyway for other reasons. But the range of possible scenarios after a Brexit is too complex and quickly reduces to a range of guesses. Recent experience shows it is counterproductive to make major portfolio moves for risks that are all over the headlines: the BP Macondo and Fukushima disasters, the US Debt Ceiling Debate, Scottish Independence and the last General Election are recent examples.

So we see our portfolios, including entirely ‘Domestic’ ones where clients have strictly Sterling needs, as well positioned for the balance of risks. Indeed, for people sitting on the side with cash, we believe this is a good opportunity to put at least some money into the market. The December sell-off (prior to which we reduced our equity weighting by 10%) has been followed by a strong counter rally and there is still plenty of fear beneath the surface  – which is Bullish.

Best regards,

Giles Rowe
CEO & CIO