Two-thirds of institutional investors at banks, hedge funds and investment vehicles believe a no-deal Brexit will have a negative impact on global markets, with a third expecting “serious implications”, according to a new survey.
By comparison, if the UK manages to secure a last-minute Brexit deal, 71% of institutional investors believe markets will improve, financial services business State Street found in its Brexometer research.
If there is an extension to the October 31 deadline, which markets believe is the most likely outcome, professional investors are more split in their views, with 43% saying traders will react negatively. A third think the opposite.
Jorg Ambrosius, head of Europe, Middle-East and Africa at State Street, said: “It’s no surprise that Brexit is having a significant impact on global markets, and whilst a confirmed decision is unlikely until the eleventh hour, the vast majority of our clients have factored in the different scenarios to their investments and business models.
“Instead, what the industry will be looking at now is how these contingency plans fare in weathering the Brexit storm.”
Further details from the research also found that 14% of institutional investors expect to increase their stakes in UK businesses if there is an extension.
This compares with 12% who said they will sell down their investments in the case of an extension – although this was lower than the same time a year ago.
The research also found that, as a result of Brexit, institutional investors are developing an increasingly negative and risk adverse view of the world, with 41% – an increase of 11% from the first three months of the year and a record high – expressing a negative view on prospects for medium-term global growth over the next three to five years.
Michael Metcalfe, head of global macro strategy at State Street, said: “Our Brexometer survey was concluded just before the wilder swings in sentiment of recent days, but still provides a pathway to how investors will react to the next steps.
“As expected, investors are close to unanimous that a deal would be good news; this is especially true for global markets generally and sterling, but a little less for UK equities. This makes sense given the likely sterling appreciation. A no-deal in contrast would be a significant drag on sentiment for all assets.”
The pound has been swinging wildly in recent months as traders’ hopes rose and were dashed repeatedly over Brexit.
At Wednesday lunchtime, it was down 0.2% with a pound worth 1.2730 dollars, but it is well up on the historic lows of 1.22 dollars following Boris Johnson’s victory in the Conservative Party leadership contest.