Brexit prompted José Luis Borges, another European investor for whom Brexit came as a nasty surprise, decided to trim his exposure to equities. “We were a little overweight and are now approximately equal weight,” he told Expert Investor.
Patience is a virtue
But it’s better to wait a bit before making bolder asset allocation moves, said Dan Kemp, CIO for Europe at Morningstar Investment Management. He called for prioritising “research over reaction”. “The danger is that investors react too quickly; that they underestimate the range of outcomes, and make predictions with too high a level of confidence,” he warned.
“So, we are starting with research and then will have a clearer view of where the valuation opportunities are. This is a time to slow down the investment process and arm oneself against the flight or fight instinct,” he added. “We are beginning to see opportunities given the extremity of some of the moves, but this is not simply a valuation event, where prices have fallen for no reason. It is an event that impacts on fundamentals, it broadens the bands of uncertainty.”
That said, he added: “Investors shouldn’t think they can sit out the volatility and wait until there is absolute clarity before coming back in.”
And clarity is still a long way off, with a power vacuum forming in the UK government. The fact that the Leave campaign, which is now in charge of the country’s future, seems to have no uniform idea of what a post-Brexit Britain should look like, doesn’t help to remove uncertainty either. And the longer this lack of clarity lasts, the more nervous markets will become.
