In light of the significant volatility ensuing from the results of the EU Referendum in the UK, we share our initial thoughts on the evolving situation as well as provide an update on the strategy you are invested or have an interest in and the implications of the event on the broader investment landscape in Japan.
The immediate fallout from the Brexit win has been a strong flight to safety. US Treasuries rallied with the UST 10-year yield down to 1.44%, lower by 31 basis points (bps) on 27 June 2016.
Nikko Asset Management's Global Investment Committee’s post-BREXIT scenario, including market and economic targets, is on the moderately gloomy side.
Uncertainty after Brexit vote, but the correction in valuations and market volatility could provide buying opportunities in some fundamentally strong credits.
Although it is still too early to determine the full implications of Brexit over the longer term, in the short term, we can expect significant market volatility as uncertainty prevails, but this does not mean that investors should panic.
The UK's late June vote in favour of 'Brexit' was initially read as a deep negative, particularly given that markets were priced strongly in favour of a 'Remain' vote. However, after brief reflection, markets outside the region saw a rally, with risk asset performance more than making up for Brexit losses.
Asia ex Japan equities declined by 1.3% in USD terms in May, largely on the back of currency weakness. Markets started the month under pressure, but later recovered on better-than-expected US economic data and recovering oil prices.
US Treasury yields remained largely unchanged in May. The impact of a disappointing US payroll figure was offset by the release of the US Federal Reserve’s April meeting minutes, which revealed that most policymakers favoured a rate hike in June should the US economy continue to improve.
Two of our senior portfolio managers in London update their earlier piece on BREXIT with numerous points of great interest on this crucial topic.
Continued easy monetary policy in Europe and Japan will be supportive for global interest rates, but the case for further limited rate hikes in the US remains in place for 2016.