BackWhere are investors looking after Brexit? Anywhere but the UK
Some investors see value in emerging-market assets, others appear to snub Europe altogether and turn to the US
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Rome, London: Investors are setting their sights away from the UK in their search for markets less vulnerable to fallout from Britain’s vote to exit the European Union (EU).
Amundi SA sees value in emerging-market rates, given that further central bank accommodation is possible after Brexit. While others appear to snub Europe altogether and turn to US stocks, Indosuez Wealth Management favours the region’s equities with the exception of the UK.
Here’s what investors say:
Amundi SA
Amundi sees opportunities in emerging-market rates as Brexit is likely to spur further policy accommodation by central banks, global emerging markets strategist Abbas Ameli-Renani said in a phone interview.
The fund is selectively receiving Central and Eastern European rates, with Poland among them. Amundi sees value in Russian and Indonesian rates as central banks engage in a gradual, but credible, rate-cut cycle.
Amundi is more cautious on emerging-market currencies after the UK vote, given weaker prospects for growth, and sees Poland’s zloty, South Africa’s rand and Turkey’s lira as vulnerable. The firm favours being selectively underweight on Central and Eastern Europe excluding Russia, and maintains a bearish view on Asian currencies, Ameli-Renani said.
JPMorgan Asset Management
US equities could benefit from a flight to quality in the aftermath of Brexit, John Bilton, global head of multi-asset strategy, wrote in a note.
A relatively weak pound could benefit UK sectors that have substantial overseas income streams, such as pharmaceuticals, staples, energy and mining.
Recent UK events reinforce JPMorgan Asset Management’s ‘up-in-quality’ bias and geographical preference for the US. Brexit is a local issue with the epicentre in UK assets, specifically in sterling, and is unlikely to stoke a significant negative reaction in the US economy or US assets further down the road, Bilton added.
Aberdeen Asset Management Plc
The company added to its holdings of emerging-market rates after the UK vote, based on the view that Brexit may delay US rate increases, emerging markets investment manager Viktor Szabo said in a interview.
He expects the US Federal Reserve to be “out of the game this year" with a “lower for longer" environment. This will drive flows into emerging-market assets, given the lack of yield in developed markets, Szabo said.
Julius Baer Group Ltd
Julius Baer upgraded emerging-market equities after Britain voted to leave, based on the view that the Fed will postpone rate increases and that central banks stand ready to act to support the economy, chief strategist Christian Gattiker said in an interview.
The Bank of Japan will probably be among the central banks that may ease policy in coming weeks, he added.
Meanwhile, the risk premium in emerging markets is too high, given the limited fundamental interconnection between these markets and the UK and Europe, Gattiker said.
Indosuez Wealth Management
The initial market reaction to the UK vote provides a good opportunity to enter mainland European equity markets, chief economist Marie Owens Thomsen said in a phone interview.
Indosuez is positive on gold and most EU markets, and negative on UK assets following uncertainties left by the referendum outcome. The firm remains very close to benchmark on US allocation, and sees ‘absolutely’ no rate increase this year by the Fed, Thomsen said.
Vanguard Asset Management Ltd
After Brexit, “the only certainty is uncertainty," strategist Nick Eisinger said in a phone interview.
Vanguard recommends caution on peripheral European government bonds and expects them to trade in line with technicals over the summer. Eisinger sees only marginal widening in periphery spreads, and any such move may offer buying opportunities given quantitative easing by the European Central Bank would act as a backstop.
Vanguard is generally positive on bunds, expecting them to remain very well-supported for the time being on technical factors. The firm favours neutral to slightly overweight positions in 10-year gilts, which are likely to be supported given the Bank of England’s (BOE) commitment to ensuring stability. The BOE’s stance may offset any selling pressure from foreign investors, Eisinger added. Bloomberg
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