FTI Consulting recently fielded a survey amongst 100 global institutional investors to gauge their immediate reactions to the United Kingdom (UK) referendum (“Brexit”) and their expectations for its impact on the UK, the European Union (“EU”) and global economies, as well as their portfolios.
#1. Access to EU
56% are concerned that the UK won’t have access to the EU common market, but 58% consider they will have access.
#2. Economic Forecast
67% consider it’s likely that a recession will be triggered by the UK leaving the EU and a similar number are concerned about it impacting their portfolios. A near ubiquitous 98% believe there will be worse conditions immediately, but 36% believe there will be better economic conditions after 2 years and this rises to 64% for better conditions after 5 years.
#3. EU Countries Most Impacted
71% believe France will also be economically harmed by the UK leaving the EU and 64% believe it will also harm the economy in Germany. On the up side, 18% believe Ireland will actually benefit, compared to 16% for Germany and 9% for France.
#4. Regions Impacted
The impact of the UK leaving the EU is perceived to be relatively contained to Europe, with 78% believing it will trigger an economic downturn, 57% for Eastern Europe. Outside of Europe, just 7% believe it will impact the Sub-Continent (Asia) and 4% for North America.
#5. M&A Activity
7 in 10 believe it’s likely that there will be an increase in M&A activity for UK-listed stocks as the £ Sterling drops and 55% are monitoring this. Sectors of most interest are Industrials (57%), Consumer Goods (48%) and Healthcare (45%).
Should the UK actually leave the EU, 85% believe GBP £ relative to USD $ will drop further. If the GBP £ relative to USD $ value drops to $1.20 then 68% of global institutional investors consider there will be substantial M&A activity or interest for UK companies (just 31% if it reaches $1.25). Most of this interest is expected to be originating from North America (91%), followed by South East Asia (39%) and Western Europe (32%).
#7.Process of Leaving the EU
The likelihood of the UK actually leaving the EU is perceived to be at 72%. 37% believe the UK government should ‘Leave the EU as soon as possible’, while a sum of 59% suggested the UK government should remain in the EU with a combination of 34% recommending ‘Re-negotiate better EU membership terms for the UK.’, 17% ‘Delay the processes at each opportunity to maintain the present membership.’ and 7% ‘Nothing – ignore the result (result overturned).’
#8. Reassuring to Hear From
In relation to reassuring voices to hear from to protect economic activity as a result of the UK’s referendum on EU membership, 78% credit ‘Bank of England Governor (Mark Carney)’ as being reassuring, followed by 51% for ‘UK Chancellor of the Exchequer (George Osborne)’, 46% for ‘UK Prime Minister (David Cameron)’ and just 17% for ‘European Commission President (Jean-Claude Juncker)’. There is a role for business leaders as 41% credit ‘UK Business leaders’ as being reassuring and 37% for ‘International Business Leaders’.
9 in 10 Global Institutional Investors undertook forecasting on the likelihood of the outcome and just 12% had the correct forecast, explaining why the currency rate moved so dramatically as actual results started coming in.
#10. Impact on Portfolios
78% have realigned their investment portfolios as a consequence of the referendum result, with 46% have headed to safeguard investments and another 46% have moved to take advantage of volatility. Overall, just 25% claim to have benefited as a consequence while most (63%) claim to have only been slightly harmed.
This research was conducted online by FTI Consulting’s Strategy Consulting & Research team from 27th to 29th June 2016, with a total of n=100 global institutional investors with $8+ trillion assets under management.
The general convention for rounding has been applied, so not all sums will add up to 100%.