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Observations on Brexit

Nos Experts

British voters unleashed a period of uncertainty on June 23rd, opting to leave the European Union. How to play the market in such choppy waters? Which political and economic signals are to be read in the referendum result? What is the real impact on our investment management strategy? Explanations.

Arnaud d’Aligny

The UK vote to leave the European Union has triggered a period of political and economic uncertainty, bringing back risk aversion and volatility. European equity markets (Eurostoxx) fell back to their annual lows recorded in mid-February, losing 11% over two trading sessions on June 24th and 27th — some financials and industrial cyclicals even shedding over 20% — before rallying 7% and falling back down 4%.

The markets will likely remain volatile over the next few months given the political and economic uncertainty, which will certainly not recede anytime soon. This calls for a portfolio management approach that is simultaneously agile and anchored in long-term convictions.

The slowdown in global growth, coupled with globalisation and digitalisation of the economy, has led to greater inequality, which is all the more unacceptable given that average incomes are no longer rising. That's why we are seeing a rise in populist sentiment and election results such as the outcome of the Brexit referendum.

The Brexit vote sends an extremely negative political message, further clouding visibility on the economic front at a time when Europe started to become a safe haven, as emerging economies slow down and the recovery in the US may be coming to an end.



Upcoming votes in Italy, Germany, the US, the Netherlands and France, as well as Brexit-induced uncertainty over European economic growth, will likely weigh on the markets in the short term as investors seek refuge in risk-free assets such as government bonds and gold.

We have been taking these factors into account in our portfolio management approach for some time now. We therefore only intend to adjust our investment policy slightly, particularly paying attention to our holdings' exposure to the UK. We will continue to support companies that we believe can create sustainable value over the longer term, with management teams able to adapt and embrace change.

Source: Sycomore AM, July 6th 2016

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