Brexit hits EU fixed income and equity markets
24 June 2016 London
Image: Shutterstock
The UK’s decision to leave the EU will have far reaching impact on multiple asset classes in EU markets and may force central banks to act in to maintain order, according to analysts at Pioneer Investments.
In statement on the referendum’s effect on fixed income, Tanguy Le Saout, head of European fixed income at Pioneer Investments, said: We expect Brexit will cause a rally in German Bunds, accompanied by an underperformance of other markets, but especially peripheral markets such as Italy and Spain.”
“A sharp ‘risk-off’ environment, accompanied by widening spreads in peripheral and credit markets could cause Central Banks to intervene. The central bank’s immediate focus will be on stabilising the markets, and they are ready to provide them with liquidity.”
“We believe that monetary policy adjustments will be made, initially through measures of credit easing and broadening of the asset buyback program, but ultimately rate cuts may be implemented.”
“On the currency front, we believe that currencies that would benefit from the risk-off environment include the US dollar and the Japanese yen.”
Speaking on the EU’s equity markets, Diego Franzin head of equity for Europe at Pioneer Investments, explained: “The UK market is likely to suffer a period of extreme volatility as investors digest the potential impact of the event. However, the presumed downward pressure on sterling is likely to be positive for the earnings prospects for certain UK companies given the predominantly international nature of their businesses.”
“Across Europe, we expect this risk-off mode to be mirrored with domestically focused Eurozone business models (financials for example) most impacted given the unknown ramifications of the decision on the Eurozone economy.”
“In this instance, we are keeping a cautious stance on the market and are focusing on companies with a superior business model, while we are cautious on more domestically focused UK business models.”
In statement on the referendum’s effect on fixed income, Tanguy Le Saout, head of European fixed income at Pioneer Investments, said: We expect Brexit will cause a rally in German Bunds, accompanied by an underperformance of other markets, but especially peripheral markets such as Italy and Spain.”
“A sharp ‘risk-off’ environment, accompanied by widening spreads in peripheral and credit markets could cause Central Banks to intervene. The central bank’s immediate focus will be on stabilising the markets, and they are ready to provide them with liquidity.”
“We believe that monetary policy adjustments will be made, initially through measures of credit easing and broadening of the asset buyback program, but ultimately rate cuts may be implemented.”
“On the currency front, we believe that currencies that would benefit from the risk-off environment include the US dollar and the Japanese yen.”
Speaking on the EU’s equity markets, Diego Franzin head of equity for Europe at Pioneer Investments, explained: “The UK market is likely to suffer a period of extreme volatility as investors digest the potential impact of the event. However, the presumed downward pressure on sterling is likely to be positive for the earnings prospects for certain UK companies given the predominantly international nature of their businesses.”
“Across Europe, we expect this risk-off mode to be mirrored with domestically focused Eurozone business models (financials for example) most impacted given the unknown ramifications of the decision on the Eurozone economy.”
“In this instance, we are keeping a cautious stance on the market and are focusing on companies with a superior business model, while we are cautious on more domestically focused UK business models.”
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