There is no doubt that the result of the Brexit vote is negative for global economic activity. Global growth had already been slow before the referendum—and business confidence has only deteriorated in its aftermath. And yet, in many ways, the figurative song remains the same for investors, who awoke on June 24 to find a world in which interest rates were plunging, global policy was poised to become even more accommodative, and risk assets like equities and credit were trading at attractive valuations compared to other assets like cash and bonds.
Given the monetary-policy backdrop, we expect the current cycle to continue and markets have room to run. However, greater market volatility is to be expected, the typical drawdowns may be more severe, and asset returns may be tempered.
We favor U.S.-dollar denominated assets over UK and European equities and credit, and we believe that the ultimate winners in all of this uncertainty may be emerging markets, which now have cover to pursue the counter-cyclical monetary and fiscal policies needed to restore growth following a prolonged slump across much of the emerging world’s 27 economies.
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Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or as a prediction of the performance of any investment. These views are as of the open of business on June 30, 2016, and are subject to change on the basis of subsequent developments.