Brexit takes flight

Economic and investment implications

Investors will need to make a range of decisions over the next two years and beyond – despite likely continuing uncertainty. To understand the evolving situation we believe that it is useful to start by identifying three phases:

  1. Direction. A first phase (1-6 months), where the likely direction that the UK will take to Brexit becomes clearer and markets assess the implications. The value of the GBP will be the principal conduit for market concerns.

  2. Negotiation. A second phase (6-24 months), where a sequence of potentially complex negotiations take place, as financial markets and the UK economy start to anticipate the reality after Brexit. Periods of volatility are possible, and macro and market indicators could move out-of-synch with each other, but there will be positives as well as negatives.

  1. Acclimatisation. A third phase (24 months+), after Brexit terms have beenagreed. Depending on the terms agreed, an initial boost to markets is possible, as it will remove one source of uncertainty. But this may soon be overshadowed by an assessment of the longer-term impact on trade and the size of the economy once the UK’s new trading arrangements become apparent. Also in the spotlight will be the intrinsic competitiveness of the UK economy and its ability to adapt to the new reality.

Throughout these three phases, it is important to remember that Brexit will not be the only game in town. The UK’s investment environment could be determined as much or more by economic and market developments in the US and EU as it is by the progress of negotiations around Brexit. Even so, we think that it is relevant to discuss the possible sequence of asset class moves and, assuming that the UK does eventually leave the EU, what factors will determine strategic investment opportunities in the UK.

 

Stéphane Junod

CIO EMEA and Head of DPM EMEA

Source: CIO Insights Special – Brexit takes flight, March 2017


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