Brexit leaves opportunities in Japan, emerging markets

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The Nikkei and emerging markets have overreacted to news of the UK’s exit from the European Union leaving opportunities to buy cheaper assets, says Liontrust head of multi asset John Husselbee.

The Nikkei, which was trading as the UK’s vote for a Brexit rolled in, ended the day down 7.9 per cent, its worst day in five years.

Emerging market currencies are among the big losers from the Brexit vote, with the Mexican peso down 5 per cent and the Chinese Yuan having its worst slide against the dollar in five years.

But Husselbee says it is “beyond me” why Far East and emerging markets have reacted so negatively to the UK leaving a trading bloc.

“I’m always surprised by the reactions to these events, the people who run around like headless chickens,” Husselbee says, adding that now is not the time to sell.

Steven Andrew, manager of the M&G Income Allocation fund, says several price movements this morning look like “indiscriminate panic”.

“It might be sufficient to justify a 10 per cent overnight move in sterling versus the US dollar, but does it justify a decline of 7-8 per cent in Japanese banks or 6-7 per cent in Portuguese bonds in a single day?”

Gina Miller, founding partner at SCM Direct, says the firm had so far held off making a change to its Japanese equity exposure until today’s result.

“Given the sharp rises in the Japanese Yen against GBP prior to today’s result and post today’s result, we are evaluating the merits of switching our Japanese equity exposure into a hedged product,” Miller says.

Trade linkages to the UK are low within emerging markets, accounting for less than 1 per cent of GDP.

Husselbee says market volatility like we have seen today are the best environments for active managers to outperform.

“Where there is the opportunity between what is good and what is bad in terms of the outlook for earnings, then that’s where active managers certainly have an opportunity over passive investing.”