The unexpected Brexit result has increased the level of uncertainty and volatility on global markets.
Reactions have been swift and generally negative. But any concrete changes to the Law or the ultimate membership of the European Union and the subsequent trading relations within and external to that Union, will probably take considerable time to determine and enact.
Ausbil will take a measured approach to the situation.
The key international policymakers, namely the European Central Bank (ECB) and the Bank of England (BoE) have started to deal with Brexit by releasing substantial additional liquidity into the system, while the US Federal Reserve (Fed) has already stated that the risk of Brexit was one of the reasons for delaying any further interest rate hikes. There is also likely to be a more co-ordinated global effort by Central Banks to ensure liquidity remains sufficiently available.
Nevertheless, the impact will be widespread. In general, we expect global growth forecasts to be lowered and currency, bond, equity and commodity volatility to continue, while Bank funding may also be impacted and consumer sentiment would likely ease. The question is, however, to what extent? And that is impossible to answer accurately at this very early stage.
What we do know is that UK growth forecasts will be lowered and therefore global growth expectations will be pared back, the US Fed will keep rates lower for longer and the thirst for yield will continue.
On a positive note, the decline in the value of the British Pound would improve the competitiveness of the UK’s exports and may well be the silver lining under the latest developments. We also expect UK interest rates to move lower.
Ideally, the Brexit decision will primarily hand the ability to pass laws and set taxes back to Britain from the European Court of Justice in Luxembourg, while maintaining the overarching benefits of free trade and access to the single market. This, however, remains to be determined. Security, foreign policy and counter-terrorism considerations are also obviously paramount.
Locally, the Reserve Bank of Australia (RBA) has room to move by lowering interest rates to more accommodative levels, while any further depreciation of the Australian Dollar will also provide a buffer against international developments.
Pockets of the Australian share market have actually benefitted from the Brexit–led uncertainty, such as the high yielding domestic telecommunications, infrastructure and utilities stocks, as well as the domestically focussed REITs, while the Gold sector has also been keenly sought. We have been increasing our exposure to high yielding stocks and we have investments in a number of gold stocks across our Portfolios.
Needless to say, we will continue to monitor the entire situation extremely closely and our assessment of each holding may change pending further developments.
Unless otherwise specified, any information contained in this publication is current as at the date of this report and is prepared by Ausbil Investment Management Limited (ABN 26 076 316 473 AFSL 229722) (Ausbil). This report contains general information only and the information provided is factual only and does not constitute financial product advice. It does not take account of your individual objectives, financial situation or needs. Before acting on it, you should seek independent financial and tax advice about its appropriateness to your objectives, financial situation and needs. Securities and sectors mentioned in this monthly report are presented to illustrate companies and sectors in which the Fund has invested and should not be considered a recommendation to purchase, sell or hold any particular security. Holdings are subject to change daily. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. No guarantee or warranty is made as to the accuracy, adequacy or reliability of any statements, estimates, opinions or other information contained herein (any of which may change without notice) and should not be relied upon as a representation express or implied as to any future or current matter.