Brokerage view: Brexit impact on equity, currency, gold, real estate

Brexit stumped global financial markets that were expecting the Brits to ‘remain in’ the European Union. The exit, according to global brokerages, has far reaching implications for global financial markets and can turn investors risk averse with a possibility of Europe falling into recession. 

Here is how leading experts, brokerages and research houses across the globe interpret the development for various asset classes. Some even suggest that investors use the panic selling to accumulate for the long-term.

Morgan Stanley

Our UK economist sees protracted political and economic uncertainty, leading to a weaker GBP, higher inflation, and a hit to growth. Headline indices will likely trade below our base case targets and some way towards our 'Bear Cases', which are set for a scenario of a two-year global recession.

Michael Strobaek, Global Chief Investment Officer, Credit Suisse

Risk assets (equities, subordinated bank and insurance bonds, and high yield bonds) are likely to sell off, while safe-haven assets (core government bonds, the JPY and CHF, and gold) will be in high demand. Monetary policymakers Japan and Switzerland may need to respond to appreciation pressures.

Nomura

For India, the economic impact should be small relative to other open economies in Asia. Still, India is not immune, as it has strong trade linkages with the EU and is susceptible to a loss of business confidence and a potential tightening of financial conditions. In our view, any adverse impact could be partly cushioned by upcoming domestic impulses to growth such as good monsoons, pay commission hikes and a likely easing of policies (both monetary and fiscal) but, nonetheless, we expect the growth recovery to slow. The immediate priority for policymakers is to ensure sufficient USD and INR liquidity to keep markets well-oiled. We believe that the RBI would step up its open market operations and provide dollar liquidity through its FX reserves, if necessary.

CLSA

For Asia the impact on currencies, the euro more than sterling, and the possible impact on commodity prices are what matter most. A weak euro, to the extent that it means a strong USD, threatens reigniting CNY (Chinese Yuan Renminbi) risks and, in the short-term at least, depressing commodity prices.

Rabobank International

A Brexit is likely to have the biggest economic impact on countries that are connected closely to the UK through their mutual trade. Those countries are Ireland, the Netherlands, Belgium, and Luxembourg. In a global context, however, the Eurozone is obviously the most closely connected. This is likely to put downward pressure on the euro. Moreover, a global sell-off in risky assets due to higher risk premiums would likely support safe-haven currencies such as the yen, the Swiss franc and, to some extent, the dollar. We don’t expect that the euro will display such safe-haven behaviour.

S Naren, CIO, ICICI Prudential AMC

We see Brexit as buying opportunity in the long term. While it is difficult to predict market movement in the short term, recent correction offers a long term buying opportunity for investors. Will be concerned if monsoon turns adverse, not Brexit. From a one-year perspective, we believe the Indian economy is in a comfortable position based on the steep fall in crude oil prices over the last year and our expectation of a normal monsoon this year

Motilal Oswal Research

In the light of the development, from a medium term perspective, the best strategy is to hold on to gold and silver and remain neutral to negative on base metals and crude oil. In currencies, Central banks will try hard to intervene but the scenario favours longs on Dollar and the Yen.

Mihir Vora- Director and Chief Investment Officer, Max Life Insurance  

While there are no immediate negatives for India, a general risk aversion will mean reduced foreign flows in the short term. We expect the currency to weaken a bit and equity and fixed income markets to be volatile in the next few weeks. Further panicky movements could provide good buying opportunities. Beyond this, the progress of the monsoon is another key variable to watch

Ajay Bodke, CEO & Chief Portfolio Manager – PMS, Prabhudas Lilladher

We feel investors need to take a measured approach and not get carried away by doomsday scenario in so far impact on Indian economy & markets are concerned. Once the dust settles down, India will be seen to be a net gainer and inflows would continue to gravitate towards Indian shores.

Jayant Manglik, President, Retail Distribution, Religare Securities

It is an opportunity for investors to use the slide to add quality stocks like Bajaj Auto, M&M, YES Bank and IndusInd Bank to name few. Of course, counters from agri and consumption segments will remain in favour in short-run, so traders can think of accumulating them now. Stocks of companies with UK exposure should remain on the avoid list for now.

G. Chokkalingam, founder & managing director, Equinomics Research & Advisory

What ultimately would matter to the Indian equity markets are monsoon performance and corporate earnings in the short-to-medium terms. In the long-term (beyond a year or so) only if these events lead to strengthening of global deflationary pressures, then our markets would have problems. It is a long way to go to assess such a possibility. This knee-jerk reaction to this magnitude for the Indian equity market is unwarranted

Anuj Puri, chairman & country head, JLL India

Investors will now be in a risk-off mode, meaning more number of investors would either pull out investments or stay put without investing further until clarity emerges. Until today, year 2016 was looking seemingly positive for real estate sector in terms of investment inflows (read PE or FDI inflows), but now that is somewhat at risk.

Shishir Baijal, Chairman and Managing Director, Knight Frank (India)

The vote to leave the EU increases near term risks facing the UK economy. An interest rate cut by the Bank of England is a strong possibility, as is more quantitative easing. For both residential and commercial property, there will be short-term market volatility. Potentially, and in selective instances, pricing could come under pressure. This we see coinciding with a devaluation of the pound. . The combination of lower prices and devaluation of the pound should draw in Indian investors looking to acquire assets in the UK. London has always been a favourite destination for Indian property buyers and it augurs well for the Indian investors to make their move now