In a decision which has caught markets and political leaders off guard, UK voters have chosen to exit the EU. We expect wide-ranging impacts across asset classes, and for volatility to be exceptionally high as the uncertainty surrounding Britain’s future business and trade status is hammered out. In this challenging environment we see attractive opportunity within specific investments.
We anticipate that sterling will move toward ￡0.95 against the euro, both on slower growth concerns for the UK economy, but also in anticipation of the requirement for the Bank of England to re-initiate Quantitative Easing. This latter element should also be reflected in UK bond prices, and the yield curve has already begun to adjust to reflect this as 10 year yields declined by 20bps on Monday morning. Within Europe, we expect German Bunds to be pushed further into negative territory, as investors seek out safe havens for funds.
In commodities, we expect Gold prices to rally further in addition to the 4.6% increases recorded on Monday, again driven by investors seeking out the safe haven nature of the precious metal. Oil prices will likely remain under pressure on foot of slower global growth concerns amid the uncertainty of the EU’s future and the risk of anti-European sentiment spreading to other countries within the bloc.
We expect domestically focused European equities to underperform to the greatest extent in the near term, again impacted by concerns about future economic growth across the region. Internationally focused UK names should outperform on a relative basis, buoyed by the benefits that weaker sterling has on earnings. We also expect investors to seek out the havens of defensive sectors like Food, Healthcare and stocks which offer attractive dividend yields as a result of the expectation of interest rates being lowered even further.
To speak with a Portfolio Manager today, phone the Cantor Fitzgerald dealing desk on 01 633 3633 or email Ireland@cantor.com