“We believe risk assets — including stocks and credit — would suffer in the resulting risk-off environment, as concerns about political instability and a reversing globalization trend would lead to higher risk premiums,” said Blackrock’s chief strategist Richard Turnill. “Peripheral European assets and the global financials and materials equity sectors would be particularly exposed, our stress-test analysis shows.”
Investors should therefore reduce their equity and credit risk, “and UK investors may want to put in place hedges against a potential Brexit outcome”, advised Turnill.
Little to gain
A poll among 333 global buy-side investors, conducted by Rivel Research Group, showed they are largely on the same page as Turnill: less than 3% of respondents believe Brexit would lead to an improvement in the European economy. The large majority of respondents also think UK and European equity markets will be negatively impacted by a vote for Brexit. Interestingly, UK investors are relatively more bearish about the prospects for continental European markets, while continental European investors are more likely to predict a negative impact on UK stocks.
Bashing the Brexiteers
In another Brexit warning, French asset manager Edmond de Rothschild AM pulled yet more threads out of the case for Brexit. The leading slogan of the Leave campaign is that Brexit would enable the UK to ‘take back control over its borders’ and ‘regain sovereignty’. According to Edmond de Rothschild CIO Philippe Uzan, they couldn’t be more wrong.
“UK sovereignty stands to lose everything if the country quits the EU. It is easy to castigate the drawbacks of belonging to the Union but operating outside its reach would also prove highly problematic,” he said, adding: “Britain’s current status, within the EU but outside the eurozone and Schengen, means London has considerable influence in Brussels and enjoys significant leeway. Moreover, its position has just been reinforced,” he said, referring to David Cameron’s negotiations in Brussels in the run-up to his referendum announcement.
The Leave campaign has recently started trying to unpick the Remainers’ favourite argument to stay, i.e. that British EU membership would be better for the economy, with Leave campaigner and ex-London mayor Boris Johnson wrongly claiming Europe is the world’s slowest growing continent after Antarctica (GDP growth in Latin America was lower than in Europe in 2015).
Brexiteers’ efforts to portray the EU as a force driving down European economic growth are fiercely dismissed by Uzan. “The fact that the UK has only 5% unemployment and one of the best growth rates in Europe owes a lot to its membership of the world’s largest economic area,” he claimed. “The EU is about more than a simple free trade zone with no customs duties. It represents essential advantages as it has scrapped non-tariff barriers like industrial and food standards.”