Jeff Conway, State Street
London - State Street Corporation has launched its Brexometer Index, a quarterly pulse survey of institutional investor sentiment towards the UK's departure from the European Union.
In the third quarter of 2016, a sample set of research was completed as a benchmark and compared against a second survey completed in Q4 ahead of today's launch.
Key findings of the index include:
- 63 percent of institutional investors expect to maintain their holdings in UK assets (equities, bonds and/or alternatives) over the next six months
- 80 percent expect Brexit to have an impact on their operating models - up from three quarters (76 percent);
- Almost half (48 percent) expect the level of investment into the UK economy to fall during the next quarter, down slightly from 52 percent in the inaugural findings;
- Just under a third (31 percent) believe asset owners will decrease levels of investment risk over the next three to five years - up from 26 percent previously. A quarter (26 percent) think asset owners will increase levels of risk.
Commenting on the findings Jeff Conway, EMEA CEO at State Street said, "Our findings show that institutional investors expect Brexit to have an impact on a range of operational issues, and subsequently we have seen an increase in clients looking to address this. Many appear well prepared for Brexit and are proactively putting strategies in place to mitigate any ensuing impact."
Michael Metcalfe, head of Global Macro Strategy at State Street Global Markets said, "At just over six months removed from the UK's EU referendum, markets seem to have mostly moved on. Questions over timing of the UK's ultimate split from the EU and the nature of their future relationship still linger and have the potential to weigh on both the economy and the pound. Nevertheless, thus far at least, the extremely gloomy pre-Brexit predictions for the UK economy and asset markets look well off the mark."
"Although it has not weakened further since October, Sterling remains very weak, with the result that the valuation case for the currency remains and appears to be aiding inflows to UK assets. The recent release of official capital flow data for Q4 2016 shows the UK with few problems attracting the funding needing for its still-large current account deficit. Foreign institutional equity investors are particularly strong buyers of UK equities of late. The outlook for gilts is less positive, not least as online price inflation is already at 3 percent and rising."
James Binny, EMEA head of Currency at State Street Global Advisors commented, "Sterling weakened sharply following the vote and fell sharply again in October. However, it has been more stable since. The weakness benefitted UK based clients who were not hedged. However, we have seen increased hedges from existing currency overlay clients - both into passive and more dynamic approaches - as well as more enquiries from clients who haven't managed currency before. For some this is simply driven by a desire to reduce risk when other asset return expectations are lower, but also UK based investors who have gained from Sterling weakness and so are seeking to lock in those profits."
To view the full research report, click here.