In the aftermath of the vote by citizens of the United Kingdom (UK) to leave the European Union (EU), OppenheimerFunds’ Senior Investment Strategist, Brian Levitt, sat down with a panel of the firm’s senior investment managers to discuss the implications of Brexit. A summary of their remarks is available below. For a deeper dive, access the full conversation.

Krishna Memani
Chief Investment Officer

The market fears that if the UK leaves the EU, it will lose access to the single market. This would be a very bad outcome for the UK, the world’s fifth largest economy, because 27% of the UK’s GDP comes from trade, with almost half of that coming from the EU. But this is not a Lehman moment. There is simply not enough leverage in the global financial system. While volatility may persist, there has already been a meaningful drawdown in some equity markets.

George Evans, CFA
Chief Investment Officer, Equities

The vote had immediate repercussions in markets around the world. The yen strengthened as it became a safe haven, causing the Japanese equity market to decline. European markets were very weak, but the FTSE Index―which is the main stock index of the UK―has not completely collapsed. The equity markets have reacted in a reasonably sane way, with bigger spreads between high and low quality companies within indices. It’s also important to remember that many of the European companies are truly global franchises.

Hemant Baijal
Co-Head of the Global Debt Team

The vote caused safe-haven bonds issued by the U.S., Japan and Germany to rally, pushing yields in the latter two countries deeper into negative territory. We are also seeing a significant flight to quality in response to fears that new referendums will take place in France and other countries. At the same time, credit spreads are likely to widen in response to the greater potential for a slowdown in global growth. Currencies will be the most impacted by policy changes and the changing economic fortunes of the UK and Europe. The anticipated recession in the UK is leading the pound lower, with the dollar and the yen remaining safe havens.

Turgut Kisinbay, Ph.D.
Senior Analyst, Global Debt Team

UK economic growth is likely to be hit badly, with a possible recession in the coming months. Spending by UK firms and consumers will probably slow, making it very difficult to generate growth. The impact on Europe will be negative, but not as bad as it will be for the UK, because most EU countries export less than 5% of their total exports to the UK. Moreover, European growth is mostly domestically driven and there is now a lot of pent-up demand following the two recent recessions.

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