BREXIT has both tactical and longer term implications for our portfolios. In the short term we will use any bounce in STOXX, FTSE UK and GBP to lower exposures to materially underweight our exposure to these markets. Tactically we would raise USD now and sit out likely further downside in risk assets over the next weeks, which we think may happen despite the intermittent rallies. We remain overweight USD and see GBP heading below 1.30 & possibly even as low as 1.20.
Strategically we believe the political and economic uncertainties for EU will, barring an unlikely reversal of BREXIT and a so far unseen actual EU political leadership, continue to add instability. BREXIT might be a ‘shock’ but it has implications for a far wider ‘shock’ should similar voter anger see Trump succeed and EU elections support emergence of populist parties sceptical of EU and EURO to power – if so the post-WW2 world order will be at risk.
We are getting used to this new normal mind you. We have seen more market turmoil and downturns in the past 8 years then in the past 30 – based on the way things have transpired, we should start seeing certain resilience by now – surely! Resilience, alas, comes from confidence and the one thing that the developed economies of today lacks, is confidence. What they have an abundance of unfortunately is fear, which is the last thing we need.
Ironically, the stability of Asia, the emergence of Singapore as a global financial power-house and the opportunities presented by the “so called” emerging markets within Asia – India, new economy China, Indonesia, Philippines and Vietnam – might just be what the investment world needs right now in order to bring back sanity!!