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What(ever) next?

16 January 2019

Markets took last night’s historic Brexit vote in their stride, but the likelihood of more volatility ahead will present both challenges and opportunities for investors.

Last night’s vote on Theresa May’s Brexit deal saw the biggest margin of defeat suffered by a UK prime minister in more than a century.

Yet you wouldn’t have known it by looking at how markets have reacted today. “The emphatic rejection of Theresa May’s Brexit resolution has been met by a large yawn in financial markets,” said George Luckraft of AXA Investment Managers.

At time of writing, neither sterling nor UK-listed stocks have made meaningful moves in response, supporting the view that a defeat, albeit not of such magnitude, had already been strongly expected by markets.

“UK and continental European equity markets have already been pricing in a good deal of uncertainty about UK-EU cross-border trade and the broader impact of Brexit on the UK’s economic outlook,” said Ken Hsia of Investec Asset Management. “This uncertainty looks set to continue for now.”

Moreover, the current quietude on markets offers a reminder that volatility can come and go at unexpected moments. Sterling has been highly reactive to Brexit developments ever since the referendum campaign; yet the enormous loss suffered by the government in the most important parliamentary vote on the deal has barely registered.

“The bulk of probabilities still lean toward scenarios of negotiated outcome or extension [of Article 50], but we must recognise that the risk of no-deal has gone up,” said Laura Sarlo of Loomis Sayles. “Extending uncertainty has a damaging impact on the economy and on sterling, although we retain our overweight to the currency with a 12-month-plus horizon.”

The breadth of views and opinions among commentators, the media and politicians shows that no-one knows what will happen next and what the future holds. However, it may be that the result makes certain Brexit outcomes increasingly unlikely.

“Heavy defeat may actually be a boon for the economy and the pound,” reported Capital Economics. “The defeat surely means Theresa May’s deal is dead, but the size of the defeat also reduces the chances of the UK leaving without a deal on 29 March, as parliament should now gain greater control of Brexit. That would mean a softer Brexit or second referendum, either of which would almost certainly require a delay to Article 50.”

Investors who had expected volatility in response to the vote would be similarly unwise to forecast the next market move or base their decisions on second-guessing the outcome of what will now be even further protracted negotiations.

Instead, the important - but not always easy to follow – principle is for investors to look beyond short-term events such as this political storm and keep their primary focus on the longer-term outlook and their goals for the future. In that respect, there is no doubt that the falls in global markets seen in recent months are providing opportunities for long-term investors.

“The disjointed way Brexit has played out thus far has left UK assets looking cheap and unloved – but they are stuffed with opportunity,” said Chris Field of Majedie Asset Management. “The uncertainty has provided an extraordinary opportunity that has the potential to produce the kind of excess relative returns that were last available in the depths of the financial crisis. Such opportunities are rare.”

That view is supported by George Luckraft, who also underlined the importance of holding a diversified portfolio that invests beyond the headline FTSE 100 stocks. “Sterling and UK equities - especially domestically-orientated shares – have been shunned by overseas investors, providing scope for some good returns if a sensible deal eventually emerges. A sensible deal would likely lead to a rally in sterling, which would be detrimental to overseas earners in the market.”

Markets dislike uncertainty, yet that is undoubtedly what they now face. “The forward path is very unclear and continued uncertainty will not be welcomed by business,” added Luckraft.

However, as investors continue to contend with the tiresome Brexit negotiations, it is important not to react to that uncertainty by avoiding making the decisions that can help towards future financial security. Those decisions require investors to take some measured risk. The current short-term uncertainties in markets need to be weighed against the certainty of continued low returns on cash.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

AXA, Investec Asset Management, Loomis Sayles and Majedie are fund managers for St. James's Place.

The opinions expressed are those of AXA, Investec Asset Management, Loomis Sayles and Majedie and are subject to change at any time due to changes in market or economic conditions. This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or adopt a strategy. The views are not necessarily shared by other investment managers or St. James’s Place Wealth Management.


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