Citing long-term economic and short-term market effects, Mackenzie advisors recommend a cautious risk management approach
In the environment of uncertainty following the Brexit vote, investors and managers are being advised to adopt a cautious approach to managing their risks.
Global financial markets are still unsteady weeks after the historic vote that led to the UK’s exit from the European Union. The volatility that currently reigns over investors is expected to persist over the short term, and will take some time to stabilize, according to a commentary released on the website for Mackenzie Investments.
“The initial market reaction to Brexit is close to what would appear justified on a fundamental basis but given the outcome was a surprise compared to investors’ expectations immediately prior to the vote some additional market weakness could be possible,” says the piece jointly written by Anthony MacGuiness, head of Quantitative Strategies, and Donie O'Brien, senior quantitative fund manager.
The report further explains that due to limited access to European markets after the UK exit is complete, London’s financial industry could take a hit. This would result in an expected reduction in European economic grown of around 0.2% to 0.4% over the next year, which would take growth to a positive but modest range of around 1.0% to 1.5%.
While the report concedes that the Bank of England is monitoring the situation and says it has contingency plans set up, including the provision of additional liquidity and other facilities to cushion any negative impact, no immediate policy response is expected. The European Central Bank (ECB) and the Bank of Japan are expected to provide stimulus to their respective economies should the need arise, while the Fed is expected to hold interest rates rather than raise them as previously expected.
Looking at medium- to longer-term time frames, there is also uncertainty over the EU’s future, as other countries may follow the UK’s lead and seek referendums of their own. Much will depend on how the EU will respond and rally its remaining members.
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Global financial markets are still unsteady weeks after the historic vote that led to the UK’s exit from the European Union. The volatility that currently reigns over investors is expected to persist over the short term, and will take some time to stabilize, according to a commentary released on the website for Mackenzie Investments.
“The initial market reaction to Brexit is close to what would appear justified on a fundamental basis but given the outcome was a surprise compared to investors’ expectations immediately prior to the vote some additional market weakness could be possible,” says the piece jointly written by Anthony MacGuiness, head of Quantitative Strategies, and Donie O'Brien, senior quantitative fund manager.
The report further explains that due to limited access to European markets after the UK exit is complete, London’s financial industry could take a hit. This would result in an expected reduction in European economic grown of around 0.2% to 0.4% over the next year, which would take growth to a positive but modest range of around 1.0% to 1.5%.
While the report concedes that the Bank of England is monitoring the situation and says it has contingency plans set up, including the provision of additional liquidity and other facilities to cushion any negative impact, no immediate policy response is expected. The European Central Bank (ECB) and the Bank of Japan are expected to provide stimulus to their respective economies should the need arise, while the Fed is expected to hold interest rates rather than raise them as previously expected.
Looking at medium- to longer-term time frames, there is also uncertainty over the EU’s future, as other countries may follow the UK’s lead and seek referendums of their own. Much will depend on how the EU will respond and rally its remaining members.
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