Investing

11 Economists, Analysts, Market Watchers State Views on Brexit Fallout Ahead

Moody’s Collin Ellis says the Brexit vote is credit negative for UK sovereign and other rated UK entities:

The UK’s decision to leave the European Union will lead to a prolonged period of uncertainty that will weigh on the country’s economic and financial performance and will be credit negative for the UK sovereign and other rated entities, Moody’s Investors Service said in a report published today.

The immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling. Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects.

While Moody’s does not expect “Brexit” to have major credit implications for most EU-based issuers, the outcome of the nationwide June 23 referendum could increase the risk of political fragmentation within the EU if popular support for the bloc fades among member states.

Morningstar Investment Management, Dan Kemp:

Investors need to keep cool calm heads amid political and financial uncertainty following the Brexit vote…

S&P Global Market Intelligence, Sam Stovall U.S. Equity Strategist:

Uncertainty, and sensational interviews on financial media, reigns. Warnings will abound that the UK will fall into recession, and questions will be raised about the economic health of the remaining EU countries and the US. I think falling prices will unveil long-term buying opportunities, particularly for mid- and small-cap stocks (that have reduced exposure to international tensions) and higher quality issues due to their lower volatility.

Overall, I would recommend that investors think more about buying than bailing by developing a buy list, such as S&P Dividend Aristocrats with 4- and 5-STARS that fall to the point that they yield 4% or more. I don’t see a recession ensuing. Trade agreements remain in force until Parliament votes to leave the EU.  In addition, the Bank of England has pledged £250 billion to support capital markets.

Global demand will not dry up and the U.K. will not be denied access to foreign markets. Granted, the EU will make it tough on the UK to discourage other EU countries from getting the same idea. In the short term, markets will trade on emotion, so make sure you don’t end up becoming your portfolio’s worst enemy. In other words, stay calm and carry on.

Stifel’s Chief Economist, Lindsey Piegza, showed three points outside of what is moving:

What’s next? According to Cameron, the U.K. will now wait until a new Prime Minister is in place before executing exit talks and invoking Article 50 of the Lisbon Treaty.

What is the impact of a Brexit? We are already seeing much of the impact span across financial markets as nervous investors flee from the region.

What does this mean for the Fed? While not an official component of the Fed’s dual mandate, global market stability has been a significant factor in determining the appropriate pathway for monetary policy here at home.

Wells Fargo Equity Strategist, Gina Martin Adams, gave several short-run expectations to watch out for:

Global stocks should sell off, though European stocks are likely to suffer more than U.S. stocks, as has been the pattern with major European scares of the last several years… Bonds are likely to rally, deriving the benefit of flight to quality, and as a result, rate sensitive sectors will likely be the most impacted among equity sectors… The dollar is likely to likewise see flight to quality flows, resulting in pressure on currency-sensitive cyclical sectors, in our view… At the stock level, we screened the S&P 500 for stocks with high sales exposure to Europe, better-than-index price returns since June 1, and increased daily price volatility over the same time period to find components of the index that appear most vulnerable, post “Brexit”… Finally, while downside risk will clearly dominate in the short run, in our view, markets appear to be entering a new volatility regime, centered on political risk.

World Gold Council:

With Britain voting to exit the European Union, we expect to see strong and sustained inflows into the gold market driven by the staggering level of protracted uncertainty that investors now face.

The Bank of England has said that it stands ready to take whatever action is necessary, a mantra that is likely to be repeated by other central banks. In practice, this could mean interest rates move further into negative territory in parts of the world, another positive for gold. Central bank action has already capped the gain in other safe haven assets, with the Swiss National Bank intervening early this morning.

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