Anand said the potential to underestimate the cost of a Brexit is “substantial”. The Brexit is an emotive issue that creates uncertainty, similarly to the Scottish referendum. In the Scottish referendum, he said, people started saying that Scotland would definitely stay in, but closer the voting day sentiment changed and there was a fear of division.
But, Anand does not believe the same dynamics will play out in the British EU referendum. “I don’t believe the emotional interaction is likely to be as substantial as with the Scottish referendum,” he said.
Moreover, Anand spoke about his belief in the ineffectiveness of monetary policy and that central banks have very limited power to drive and shape the economy, as they “are reacting too prescriptively” instead of inaugurating confidence. According to Anand, central banks should rethink what their primary purpose is, which should be to instill confidence.
“Recent events have to lead central banks to ask how effective is this strategy that they’ve been pursuing during the past few years? In order for monetary policy to be effective, it needs to stimulate the real econonomy as a result,” he noted.
“Monetary policy does not drive markets; companies drive stock markets, as highlighted by the important lesson that Japan has given us,” he said, and added: “The Japanese company sector failed to make sure businesses were run in a way that’s sustainable in the long term.”
With regards to equities, Anand said that for the first time in a long time Fidelity is drawn to the sectors and markets that are in “the eye of the storm”, and pointed to three sectors that the firm is generally more focused on today. First, financials (especially the banking sector), since “the difference between the price on the screen and the value of the business is substantial”.
Second, consumer facing sectors, driven by the position of the consumer, which remains positive and is strengthening due to a pick up in employment, wage growth and improving consumer confidence.
The third area is the industrial part of the economy that has been hit by the oil crunch. “Certain areas, particularly domestic infrastructure look like they will be entering a good phase during the next decade,” said Anand. “In Europe we have the same interest in the same sectors, because the factors affecting the economy are universal,” he added.
