UBS: The bright side of Brexit?
What was initially reported as armed robbery turns out to be a misunderstood negotiation. No, I am not talking about what occurred in Brazil with four US Olympic swimmers. I am talking about Brexit.26.08.2016 | 10:44 Uhr
Many had feared that a UK vote to exit the EU would represent a significant setback for global markets.Instead, aside from the impact on the UK pound, the post-Brexit plungelasted only a few days, as the reassuring Bank of England (BoE) responseand stronger data elsewhere have allowed markets to focus on globalgrowth. Now, all three US stock benchmarks are near record highs. Emergingmarket (EM) equities are at one-year peaks. High yield bonds have held upin spite of volatile oil prices. And, at the other end of the risk spectrum, the demandfor developed market government debt is such that 40% of it nowtrades with a yield below zero.
Our diversified portfolios and overweight positioning in US equities havebenefited from the post-Brexit rally. Over our six-month tactical investmenthorizon we remain confident that markets still hold upside. We are overweightUS equities and US investment grade debt over high grade debt, aswell as emerging market equities over Swiss equities.
But can we go further and point to something beyond a neutralization ofthe Brexit concerns? What might it take to see a potential bright side tothe much-discussed vote? At a global level, the Brexit experience is promotingthe debate on the limits of monetary policy, which could prove beneficialif it leads to more coordinated monetary and fiscal stimulus. And forthe UK itself, Brexit might offer a historic opportunity to improve its economicfortunes, if the country follows the right role models.
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