Asset managers, including Vontobel, Manulife AM, Pictet AM and JP Morgan AM believe a Brexit is unlikely.
Below FSA has collected summarised views from asset managers on the likely result following a `stay’ and a `leave’ vote.
REMAIN SCENARIO
Pictet AM
In case of a surprisingly strong “remain vote”, we would expect to see a sharp unwinding of extended longs on safe haven assets such as the Japanese yen, European government bonds and gold. On the short side, this unwinding would include extended shorts on the British pound and euro, as well as on UK and European equities.
JP Morgan AM
It would not entirely be business as usual after a vote to remain. But the direct macroeconomic impact would be modest and probably far outweighed by developments in the broader global economy. Indeed, with the immediate uncertainty associated with the referendum removed, investors might see the relative weakness of sterling as a reason for renewed interest in UK assets.
DNCA
Any renewed political credibility in Europe will provide a boost for the equity asset class. The pessimistic consensus on profit margins in Europe looks somewhat excessive. Europe is admittedly not entirely sheltered from external shocks, but intrinsic growth factors are certainly visible.
LEAVE SCENARIO
Columbia Threadneedle Investments
We have a threshold at which we believe any equities sell-off represents a buying opportunity (and having reduced equities in recent quarters we have scope to build positions). By contrast, we have a ceiling on the back of any remain-rally, at which we might wish to take some profits.
Vontobel AM
It is reasonable to assume that the pound would weaken significantly (by 10% or so) on worsening economic prospects and an unsustainable current-account deficit.
One would expect “safe” government bonds and gold to continue to do well, and the Swiss franc as well as the US dollar to benefit. Central banks will likely stand by to shore up sentiment.
Pictet AM
A short-term negative for global economies and markets, and further boost demand for safe havens such as gold, developed market government bonds, CHF, JPY, and to some extent the USD.
Emerging market assets would be hurt by a generalised rise in risk aversion but eventually this would be somewhat offset by a more dovish Fed and capped dollar.
Axa IM
We expect euro area equites to fall by up to 10% to 15% in the event of Brexit. Euro area credit markets would be adversely affected by such a result, and euro credit spreads may widen materially, as well.
We consider the likely impact on US credit to be limited due to flight-to-quality considerations.
Manulife AM
A significant weakening of the pound would most likely boost inflation, while uncertainty surrounding the future of the city and political instability would see growth slow. The Bank of England would have to decide whether to focus on inflation or growth. When the BoE last faced this dilemma in 2008, it eased monetary policy. We expect the same in response to Brexit, which should buoy equities.
JP Morgan AM
We do not believe that UK government bonds would come under serious pressure in this scenario. UK equities could see a further 2%-3% sell-off, in addition to perhaps a further 10% fall in the trade-weighted value of sterling.
State Street Global Advisors
Volatility is likely to travel beyond Britain because the country has a large government bond market and the British pound is widely traded. Markets hate uncertainty. A potential ‘leave’ vote will not do markets any favours.
