Forget the crystal ball

Peter Fitzgerald

Active in the investment industry since 1995, Peter manages our suite of outcome-focused funds. He also leads our global multi-assets investment team.

Brexit shows why it’s wise not to rely on a crystal ball, says Peter Fitzgerald, global head of multi-assets...

“Nobody can predict the future” is a phrase heard often at Aviva Investors. So we try to build investment portfolios that can prosper in a highly unpredictable world. Certainly, financial markets and the bookies were all as wrong about the outcome of the recent referendum on the UK’s membership of the European Union as they were about last year’s general election. And nobody could have foreseen the political turmoil unleashed by Brexit in the weeks following the referendum. As someone said: “you go to make a cup of tea, and by the time it has brewed the world has changed again!”

Our job now as investors is to assess the likely consequences of Brexit and to identify who will benefit and who will suffer. It’s not difficult to make a call about the likely consequences over the next two years. There will be delays to investment projects and consumers will be more cautious. People will be more reluctant to buy that new car or add an extension to their house. But exporters should benefit from the weaker pound, which makes British goods cheaper in overseas markets. We might also see lower interest rates and a rise in government spending on infrastructure projects. We are already finding the likely winners and losers of these trends.

Elsewhere, Europe will be affected since the UK was one of the few economies in the region that was performing relatively strongly. But US equities could actually benefit, as interest rates are unlikely to rise as quickly in America as would otherwise have been the case.

The long-term consequences depend on the trade agreement that emerges between the UK and the EU. It’s hard to know at this stage what that will be. But as we have seen from previous crises, financial markets do not like uncertainty and this will create volatility. While there are challenges ahead, there will also be investment opportunities for those who know how and where to look.

 

AR01728  08/2016

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