Unexpected for investors the decision of the British to withdraw from the EU after almost a quarter century after the entry into force of the Maastricht Treaty, marked the beginning of the EU, has stirred up global markets. According to Bloomberg, investors around the world are trying to find a way out of this situation.
“Ultimately, we have no idea what will happen in the future,” said managing Director of Mischler Financial Group Glen Capel to its customers. According to him, investors will probably have to “rewind 23 years”.
Although the results of the referendum caught investors by surprise, markets and analytic reports begin to be traced certain trends: investors are reviewing their strategies for investments in stocks, currencies, government and corporate bonds.
The consequences of Brexit more likely impact on the stocks of European companies, according to respondents to Bloomberg analysts. Credit Suisse downgraded the stock index UK, Europe and the United States at the end of the year to 6.5%, 14% and 7.5%, respectively. According to estimates Morgan Stanley, the fall of the British FTSE 100 is at 19% and the Euro Stoxx 50 is within 14%. Hardest fall, shares of financial institutions and companies in the consumer sector, while shares of health enterprises and companies that produce commodities will be higher.
According to the chief strategist in the direction of “global investment” in Charles Schwab Jeff Kleintop, which leads Bloomberg, seekers a “safe Harbor” (markets where you can wait out the crisis) will pass on dollar-denominated instruments, and the consequence will be the growth rate of the American currency and the collapse of commodity prices. This will reduce companies ‘ profits and weaken the yuan, while the reduction in exports to Europe (largest customer, China, may “renew China’s fears about a sharp reduction in the growth rate of the economy.”
Kleintop compared the current active sale of financial instruments with those that occurred in Japan after the earthquake and tsunami in March 2011, in the United States after the signing of the law on the state debt in August of the same year in the EU against the background of recession in the Eurozone, triggered by the debt crisis in 2012. All three markets fell at least 11%. “Long-term investors should understand that in each example the value of securities returned to pre-crisis levels in three to four months”, — quotes its words Agency.
The head of Hassium Asset Management Yoji Dewan told Bloomberg that it sells European securities to buy British stock: he expects the Bank of England will cut rates and will resume quantitative easing to support growth. At the same time Capel from Mischler Financial Group fears that such steps of the British Central Bank may worsen the situation of banks that have already suffered from negative rates.
RBC Capital Markets recommends to invest in the Nordic banks, like Danske Bank A/S, Swedbank AB and DNB ASA, since they have relatively low beta coefficient and their profits should be more stable. Strategy investment Institute, Wells Fargo predict that the consequences of Brexit will not affect the dollar, which will benefit American companies focused on foreign markets. Wells Fargo maintains forecast index Standard & Poor’s 500 in 2016, which envisages growth of 7.5% since the close of trading on June 24.
The greatest risks faced currency markets of commodity countries and countries whose economy depends on the UK, believe analysts surveyed by Bloomberg. Benefit to the traditional reserve currencies — the dollar and yen.
According to the head direction “Macroeconomic policies in North America” State Street Global Markets Lee Ferridge, the dollar against the yen by year-end will be reduced from ¥102 per $1 on 24 June to ¥95 = $1. The pound may recoup part of the losses and will negotiate $1.4 per £1.
Deutsche Bank AG maintains its pessimistic Outlook on the Euro-dollar exchange rate — a $1.05 per €1, says research co-head of Global Foreign-Exchange in London George Saravelos. On 24 June the Euro fell 2.4% to $1,11.
The South African Rand one of the weakest currencies among emerging markets because of the close financial ties of Africa with the UK. At the same time, investors in rouble tools can extract some benefit from isolation in connection with the sanctions against Russia,” Bloomberg quotes analyst estimates Italian UniCredit SpA ahead of the vote. Experts Morgan Stanley advised selling Australian dollar and buying the yen. Investors who have bet against the Eastern European currencies, expect further reduction.
The yield on 10-year US Treasury bonds “risk of falling to historic lows, while the yield on German and Japanese bonds will go even deeper into uncharted negative territory,” cites Bloomberg estimates Credit Suisse. On 24 June, the yield on ten-year US Treasury bonds fell by 19 basis points to 1.56 per cent — is close to a record low of 1.38% in 2012.
“We expect that Treasury bonds will trade better than the government bonds of Germany within the next month, analysts predict Wells Fargo Securities. Since the end of voting in the UK ten-year German government bonds (called bunds) traded almost simultaneously with the bonds, but concerns over the collapse of the EU should support us bonds”.
The impact of a British exit from the EU to emerging markets will be limited, according to the head of global strategy in the emerging markets UBS Securities Jeffrey Dennis. It may revise its stance on shares in Europe, Middle East and Africa, whose share is now just above indicated and from such countries as Turkey, Greece and South Africa, for which the UK is an important export market.
The situation on emerging markets will soon be settled, said Viktor Szabo, involved in the management of debt securities of developing countries by nearly $10 billion at Aberdeen Asset Management Plc in London. According to him, high-yield bonds of developing countries can benefit from a more prolonged low interest rates in Europe: investment inflows into the debt markets of developing countries can grow.
Head of Department for debt markets of developing countries Deka Investment GmbH Peter Sutmuller told Bloomberg that took away assets that depend on Brexit less likely. “We have increased our position in Gazprom as the Russian state Corporation Brexit almost nothing associated; we bought individual bonds in Argentina and Indonesia and closed the short position at real Madrid, he said.
The expected panic in the credit markets will last a day or two, then investors will have the opportunity to buy at more favorable prices, according to Credit Suisse. Morgan Stanley advised to decide to buy European corporate bonds because of the current and potential support from the ECB. “We expect a serious response from the ECB”, — quotes Bloomberg an excerpt from the message Bank.
Analyst at Pacific Investment Management Dan Evason eyeing the assets associated with real estate that can be protected from political instability in Europe, including the risks in the mortgage market.
Who won and lost from Brexit
News on the outcome of the referendum, which took place on 23 June, led to the collapse of the world stock market and a record drop in the British pound. Interviewed by Reuters, representatives of major European businesses have expressed concern that the victory of the supporters of Brexit means the beginning of a “period of uncertainty”.
Losses in the trillions
Global equity markets lost more than $2 trillion of its value at the auction of 24 June, reported Financial Times. This is the maximum drop of the index during a trading day since at least 2007.
The collapse occurred due to the fact that investors are massively rid of risky assets and transferred their funds to “safe haven” (markets where you can wait out the crisis). According to the FT, most have lost the U.S. stock market — $830 billion to About $400 billion lost in the global financial sector. The markets of developing countries have lost a total of $128 billion.
The greatest benefit from Brexit received the British manufacturer of tobacco products British American Tobacco: June 24, its shares jumped during the day by 2.6%, year on year growth was 16%.
As noted by Bloomberg, the sale of a company’s product abroad is higher than in the UK, making it favorable for the weakening of the pound. The same applies to the manufacturer whisky Diageo Plc. The production of cigarettes and alcohol has always been a sustainable business during the crisis, noted the Agency.
News about Brexit increased the shares of the index Fund SPDR Gold Shares — 4.8%, amid rising gold prices.
Rose by 2.5% shares of the largest Swiss financial conglomerate UBS Group AG.
To profit could an American billionaire George Soros, whose fortune Forbes estimates at $24.9 billion (23rd place in the global ranking of billionaires). As reported to Reuters by his representative (the Agency did not disclose his name), Soros earned on the decline of the pound, and “other investments”. What investments and what profit is it, he said.
Of the company affected
The greatest losses on the background of Brexit suffered the British construction firm Taylor Wimpey: its shares fell by 29% due to concerns about the decline in demand for residential property.
18% fell shares of Royal Bank of Scotland — amid expectations of declining profits internally oriented banks.