Survey Anticipates Negative Brexit Effect

The pound sterling is plunging and global capital markets are in turmoil on the heels of the United Kingdom’s vote to leave the European Union (EU).

Though the post-Brexit referendum era is still in its early stages, these initial developments are in keeping with the results of a recent CFA Institute and the CFA Society of the UK survey conducted between 7 and 13 June 2016.

“A vote for the UK to leave the European Union would have a negative impact on clients’ interests according to the survey’s respondents,” said Paul Smith, CFA, president and CEO of CFA Institute.

The survey of more than 1,750 global investment professionals found that 81% expect a Brexit to lead to a moderate to sharp decrease in equity markets over the next three to six months, 71% believe that it will have a negative to very negative effect on UK portfolios over the next 12 months, and 74% anticipate the pound sterling to depreciate in value by at least 5% relative to other currencies.

“The survey’s respondents typically believe that in the year after a vote for Brexit, sterling would weaken, relative Gilt values would fall and so would the value of the stock market in the UK,” said Will Goodhart, chief executive of the CFA Society of the UK. “If that came to pass, those who hold investments in their pensions or elsewhere would be hurt by the decline in the value of their assets.”

Over three quarters of respondents to the questionnaire were from outside of the United Kingdom, and while their responses were not quite as bearish on a Brexit as their UK counterparts, their overall assessment was that the effects would be largely detrimental.

“Respondents from other international markets also believe that Brexit would be bad for UK clients, UK assets, and sterling with a knock-on effect running into other markets.” said Goodhart. “UK respondents feel this more strongly, but it is interesting that qualified investment professionals from around the world — with no emotional involvement in this issue — also strongly believe that a Brexit vote would be against UK clients’ interests.”

The results of the Brexit vote are likely to have powerful  reverberations throughout the globe for some time to come. Already there are calls for similar referendums in the Netherlands, France, and elsewhere, creating a potential stampede for the EU exits. These developments will likely influence global markets and the financial sector for the foreseeable future.

“Asset management and asset management clients are global in their aims,” said Smith. “Brexit . . . will make it more difficult for businesses to operate globally.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©AP Photo/Richard Drew

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