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Brexit...pursued by bear market?



The “Leave” vote has set in motion a period of long-lasting political, economic, and market uncertainty in the UK and Europe. The UK’s exit from the EU is expected to prove messy, drawn-out, and expensive. Any benefits resulting from lower payments to the EU may be countered by losses in services exports and investment flows. Meanwhile, pressure on European shares, credit and peripheral government bonds is expected to intensify. Commercial property values could fall by 10% over the next year and overseas investors are likely to demand a larger risk premium as compensation for holding UK assets.

David Page, Senior Economist at AXA Investment Managers

The UK economic outlook is likely to be severely affected by the vote to leave. Subdued investment and foreign direct investment are expected to weigh on economic expansion. We have downgraded our forecast for UK GDP growth in 2017 from 1.9% to 0.4%. Intensifying short-term inflationary pressures, coupled with rising uncertainty over employment, are expected to apply a fresh burden on households as real disposable income growth slows. We expect the Bank of England to implement two interest-rate cuts before the end of 2016 – each of 0.25 percentage points – and to instigate between £50bn and £100bn of quantitative easing.

Nick Mustoe, Chief Investment Officer
Mark Barnett, Head of UK Equities
Jeff Taylor, Head of European Equities

The “Leave” vote creates substantial short-term headwinds to the UK economy, including delays to consumer spending, recruitment, and foreign direct investment. The Brexit decision is likely to weaken sterling and curb growth; nevertheless, the economy remains well positioned to handle what lies ahead. Moreover, market volatility may create some attractive buying opportunities for long-term investors; in particular, large UK companies with a high proportion of overseas earnings could benefit from pronounced weakness in sterling. Although broader European economic growth may be negatively affected, Europe’s recovery has been driven by domestic demand, and is therefore well positioned to withstand external shocks.

Azad Zangana, Senior European Economist & Strategist

The UK’s decision to leave the EU has come as a major shock for investors and uncertainty is likely to remain high for some time. Companies may postpone or cancel investment and hiring plans, putting pressure on households. Sterling is likely to depreciate significantly and, although this could boost the competitiveness of UK exporters, uncertainty over trade arrangements may offset the otherwise positive impact on overseas demand. Moreover, weak sterling will boost import prices, stoking inflation and dampening demand. In the near term, the UK may experience a period of stagflation: stagnating economic growth accompanied by high inflation.

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  • AXA Investmnent Managers
  • Aviva Investors
  • Baillie Gifford
  • BlackRock
  • BNY Mellon
  • Fidelity International
  • First State Investments
  • Goldman Sachs Asset Management
  • Invesco Perpetual
  • Investec Asset Management
  • Janus Henderson Global Investors
  • Jupiter Asset Management
  • Legal & General Invesment Management
  • M&G Investments
  • Schroders
  • Square Mile Investment Consulting & Research
  • Neptune Real World Investors