Investors should brace themselves regardless of Brexit vote result – UBS

Added 15th June 2016

An “acrimonious” Brexit is likely to lead to Bank of England rate cuts, flailing FTSE indices and fall in consumer confidence, according to head of UK Investment Office at UBS Wealth Management, Bill O’Neill, and UK economist at UBS Investment Bank, David Tinsley.

 Investors should brace themselves regardless of Brexit vote result – UBS

“If the UK votes to leave the EU, there are indications we’ll enter a period of stagnation, not an outright recession,” O’Neill stressed. That is, unless the UK’s withdrawal ends up being an “acrimonious confrontation” instead of a “harmonious exit.”

The bleaker alternative has the potential to plunge the UK into a “prolonged period of uncertainty” and a potential recession which could carry over into the second part of the year, O’Neill postulated.

If a vote to leave the EU is followed by such a troubled transition, the duo anticipate the Bank of England will be forced to cut rates within 6-9 months, business investment and hiring will decline, the FTSE 100 will fall by 10% and there would be even more pressure on the FTSE 250.

The tone is likely to impact the subsequent negotiations with the EU. This is crucial, said Tinsley, because it will determine how badly the UK’s loss of the four freedoms of EU membership are. When it comes down to it, what is really at stake in the referendum is the freedom of movement of goods, services, capital and labour, he said.

O’Neill and Tinsley said that in the meantime, their strategy has been to convey to clients the need for diversification. “We have advised clients they need to be careful and avoid excessive exposure to sterling,” O’Neill added.

The pair’s stance on sterling and UK equities remains neutral, a position they do not intend to change despite the fact some polls are showing Leave edging out ahead of Remain. “We were underweight on UK equities in the beginning of the year and moved to neutral in the Spring,” O’Neill noted.

This decision is partially based on the fact that the polls are conflicting, and thus inconclusive, in their view. But it is also because whatever the outcome, there will be an ensuing period of uncertainty, according to O’Neill.

Dean Turner, CFA and economist for UBS, identified uncertainty and shifts in business and consumer confidence as the likely swing factors for the economy and markets in the months that follow in a recent report.

If the UK votes to remain, Turner anticipates this uncertainty will dissipate fairly quickly. Tinsley expressed a similar view, saying political uncertainty would outlast market uncertainty in a remain scenario.

Sponsors

Portfolio Adviser: Guide to Europe

Portfolio Adviser: Guide to Europe

After a politically turbulent time in 2016, Europe has been under scrutiny with several nations going to the polls.The question asked, would investors be right to...

Kames Income Hub

home_research_centre

Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

Premier Multi Asset Global Growth - Alex Farlow
Premier Multi Asset Global...

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Kristen McGachey

Senior Reporter

Kristen joined Last Word Media and the world of financial journalism in April 2016, leaving behind a career in a legal publishing firm as a senior researcher turned assistant editor.

This native Angelino initially moved to the UK in 2008 to complete her undergraduate studies at the University of Nottingham. She subsequently obtained a Masters degree in Philosophy with Literature from the University of Warwick.

Profiles

Viewpoint

Investment Strategy

Feature

Tweets

Events

PA Edinburgh 2017
PA Edinburgh 2017

Thursday 7 September
Balmoral Hotel, Edinburgh

PA Alternatives 2017
PA Alternatives 2017

Tuesday 12 September
Radisson Blu Edwardian Bloomsbury Street Hotel

PA Dublin October 2017
PA Dublin October 2017

Tuesday 10 October
Westbury Hotel, Dublin

PA US 2017
PA US 2017

Tuesday 17 October
Furniture Makers' Hall

Sponsored Content

OTHER STORIES FROM LAST WORD...