“Brexit really does frighten me. It’s on a knife’s edge at the moment,” says Paul McNamara, an emerging market bond manager at the Swiss asset manager GAM, who spoke at the Expert Investor Netherlands forum last week. He was referring to the opinion polls, which are still much closer than the bookmakers’ odds, though the latter have a better track record in predicting election outcomes.
McNamara is taking a similar line on the possible consequences of Brexit as Yanis Varoufakis, the former finance minister of Greece. “Brexit could be a catalyst for a significant unravelling in Europe, and change the direction the debate that is going on,” he said.
While emerging markets are expected not to be affected directly by a British vote to leave the EU, there could also be indirect negative consequences for McNamara’s asset class, he admitted. “A rapidly strengthening dollar would be the flipside of weaker growth in Europe [which is likely to happen in case of Brexit].” And a stronger dollar is traditionally bad news for emerging market debt, as it makes it harder for local companies to service their dollar-debt and tend to lead to outflows from the asset class.
‘Brexit could disrupt asset management exports’
Steven Smith, an investment specialist at Capital Group, agreed that the economic and political impact of Brexit would be detrimental, adding that it would be especially hurtful to the UK’s asset management industry.
“The Investment Association (IA) [the organisation representing the interests of UK-based asset managers] is about to publish a paper saying Brexit could be quite disturbing and disruptive for investment management industry,” said Smith.
While the IA denied it intended to publish such a paper, the organisation told Expert Investor that, should there be a full UK Brexit that resulted in the UK leaving the single market, “then it would be profoundly disruptive for the export of asset management services and products, as well as potentially having consequences in other areas, such as access to market infrastructure”.
It added: “Leaving in such circumstances, coupled with the likely loss of influence over the rules with which we would have to comply with to continue to operate within the EU, would not be a desirable outcome for our sector.”
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