Brexit: What Does the ‘Leave’ Vote Mean for Markets?

Guy Barnard, Co-Head of Global Property Equities

Guy Barnard, Co-Head of Global Property Equities

What does Brexit mean for various asset classes? Two experts from Henderson Global Investors provide their views on real estate and U.K. stocks.

Guy Barnard, Co-Head of Global Property Equities

The full implications of the decision by the U.K. to leave the EU will take many months, if not years, to become clear. However, the short-term economic impact is undoubtedly negative given the uncertainty surrounding the U.K.’s trade renegotiations along with the knock-on impact to the rest of the EU, where political tensions will undoubtedly increase. All of this will undermine investor confidence and delay business and investment decisions.

For real estate markets, the impact is twofold. Firstly, given heightened uncertainty, short-term demand is likely to drop significantly as prices adjust downwards and find a new level, along with other asset classes.

Weaker Sterling

While potentially substantial, we do not expect price falls to be as significant in the U.K. as they were during the financial crisis, given leverage in the sector is far lower today and the banking system is stronger.

We may also see some support from central bank easing and ever-lower bond yields. Additionally, a weaker sterling may attract international investors, as it did after the financial crisis.

London Office Market Most Exposed

Secondly, what will happen to tenant demand? Rental growth is highly correlated with economic growth, so we would expect to see weaker demand caused by economic uncertainty putting pressure on rents.

The London office market will be most exposed given demand from financial and multi-national occupiers will weaken as they decide how this will affect their businesses going forward.

Ben Lofthouse 500

Ben Lofthouse, Global Equity Income, Portfolio Manager

The decision of the U.K. electorate to leave the European Union is unexpected and has resulted in significant market volatility. In the short term there is little practical impact from the decision at a company level. The U.K. will, at some point, begin to negotiate with other countries but in the meantime business continues as normal across Europe.

The biggest short-term impact on business is likely to be the effect of currency movements. Currency weakness will improve the competitiveness of U.K. exports, and the earnings of overseas earners will be revised upwards.

Currency Weakness

On the negative side input cost increases will affect some industries. The best opportunities for investors may come from international businesses listed in the U.K. and Europe that sell off with the market, but whose trading will not be impacted by Brexit and who may benefit from currency weakness.

A significant proportion of the team’s Global Equity Income portfolios are invested in these types of company. There may be short term volatility in these share prices but we expect them to recover.

Growth Could Be Slow

The medium to long term impact of the vote is very hard to predict. We do not see global economic growth as being particularly impacted by events in the U.K., but one implication of the referendum is that growth in the U.K. could slow in the medium term until any new terms of trade are finalised and foreign direct investment is put on hold.

This could subdue interest rate expectations, and at extremes could lead to further monetary easing in both the U.K. and Europe. This is likely to result in continued demand for companies with defensive revenues that generate attractive sustainable dividends and in which our portfolios have significant investments, such as telecommunications, consumer staples and utilities.

Prolonged Slowdown

The biggest risk is that the slowdown could be prolonged and greater than expected, and cyclical stocks would be impacted by this, particularly those with weak balance sheets. We are alive to this risk, but take some comfort that our stock selection is driven by dividend sustainability and prioritises strong cash flow generation, and strong balance sheets.


For Professional Investors only

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Past performance is not a guide to future performance. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.
If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus and where relevant, the key investor information document before investing.

Issued by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ref: 36M

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