The UK vote to leave the European Union is the “worst of the two possible outcomes” for companies and investors, says Old Mutual Global Investors’ Richard Buxton.
“The biggest sadness of today is that it is reasonable to assume that the UK will quickly enter a period of economic recession, the key reason why we believed the outcome would be different from what has materialised today,” Buxton says.
In effect, he says, it will likely become the first ever “DIY recession”, a coin termed by Chancellor George Osborne.
Buxton had long been confident that the bookies, not the polls, had it right in the lead up to yesterday’s referendum and that the remain vote would prevail, saying that the prospect of Donald Trump winning the US presidential election was a much bigger geopolitical threat.
Funds will have to meet redemptions in conditions where liquidity will be limited and investors should brace themselves for “an unpleasant period of relatively indiscriminate selling”.
Gold was one of “a very small number of bright spots”, as investors looked for safe havens, cracking the US$1,300/oz barrier. Likewise bond prices rose and yields declined.
“It is difficult to say at this stage what action the Bank of England may take, but it is not impossible to imagine that it may quickly cut interest rates,” Buxton says.
“Restarting the programme of quantitative easing – a feature that has been absent from the economic landscape for some three years now – also looks a possibility.”
Australian, Hong Kong and Japanese equity markets, which were all open as the vote came in, all declined.
Speaking ahead of the open of trading in London, Buxton says the prospects for domestically focused UK businesses “are clearly the bleakest of all”.
“FTSE multinationals will, on a relative basis, almost certainly perform better than their domestically oriented peers as the weaker pound will support overseas earnings when translated back into sterling.”