Investments  

What next for post-Brexit markets?

What next for post-Brexit markets?

Investment managers predict political rhetoric over the next few days could hit markets in the weeks to come following the UK’s decision to leave the European Union.

The UK’s historic referendum sent powerful shockwaves through global capital markets.

Intra-day volatility in sterling, European equities and selected other asset classes has approached or even exceeded that seen during the most turbulent episodes of the global financial crisis.

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Here three investment managers reveal what we can expects markets to do next and up until the end of this year.

Next few weeks

Larry Hatheway, group chief economist and head of multi-asset portfolio solutions at GAM, said moving forward, in the near term, he expects above-average volatility to remain a feature of global equity, fixed income, currency and commodity markets.

Mr Hatheway said: “Sharp moves in both directions are possible, but it will be difficult to draw much lasting inference from them. The primary near-term driver of market volatility will be portfolio re-positioning and risk management, not high-conviction fundamentals-based trading.

“Asset prices will also be sensitive to the words and actions of political leaders and policy makers.

“Over the coming days various governments, international organisations and central bankers will attempt to reassure investors and the broader public that the political and policy-making apparatus can and will address the challenges and risks associated with Brexit.

“But it is also likely, given various latent political tensions unleashed by Brexit, that markets will be occasionally jarred by political rhetoric that provides unpleasant reminders of the enormous challenges that lie ahead for Britain, Europe and their joint relationship.”

Mr Hatheway said central banks will stand behind markets, offering liquidity as needed.

In the event of disorderly markets, Mr Hatheway said central banks may also intervene, potentially in coordinated fashion.

But outright changes in monetary policy – for example, interest rate cuts or stepped-up asset purchases – are likely to be adopted with a lag and only if Brexit and associated market turmoil are judged to warrant a fundamental policy shift, Mr Hatheway said.

In all likelihood, however, Mr Hatheway said Brexit and its uncertainties will lead the Fed to postpone any rate hike until late 2016 or 2017.

He said: “In sum, markets are likely to be volatile and directionless in the near term, making for a challenging environment in which to invest.”

Remainder of 2016

Over the remainder of this year and probably for longer, markets will have to cope with elevated political and economic uncertainty stemming from Brexit.

That applies to the UK as well as to the European Union.

James Dowey, chief investment officer at Neptune Investment Management, said global financial markets during the coming weeks and months may prove to be influenced more by knock-on effects of “Brexit” within the rest of the EU than by news from Britain.