he ground is still rumbling from aftershocks of the June 23 UK referendum to exit the European Union (EU), leaving many more questions than answers. But an FTI Consulting survey conducted immediately after the Brexit vote makes one thing clear: global institutional investors are deeply concerned about the effects on the UK and EU.
FTI surveyed 100 institutional investors from around the world that are managing portfolios with a collected value of $8 trillion and found a majority believe that the UK and EU economies will be harmed as a result of the UK following through with Brexit. More than two-thirds (67 percent) expect Brexit will trigger a recession, while 98 percent foresee economic conditions worsening immediately. There was a glimmer of long-term optimism, however: 64 percent of respondents said economic conditions would on balance be better after 5 or more years.
When asked about the impact on specific EU countries, 71 percent of institutional investors believe France will be harmed (considered the most vulnerable) and closely followed by Germany with 64 percent. Although 40 percent expected Ireland to be harmed, the silver lining for them is that 18 percent actually thought they would benefit. Respondents believe the impact will be relatively contained to Western Europe—only 4 percent said North America will be harmed, while 7 percent mentioned Asia.
Given the unpredictability of the fallout, FTI’s advice to concerned investors is to remain engaged, stay updated on the current state of play and to be nimble in adjusting to changing market forces.
Indeed, the institutional investors surveyed are being nimble. More than three-quarters (78 percent) have already realigned their investment portfolios while almost half (46 percent) have moved towards safeguarded investments. Another 46 percent are making moves to take advantage of volatility with 25 percent claiming to have benefitted from the moment.
Though the exact exit date is yet to be determined and even the question of whether the UK will actually leave the EU is still up the air, the threat of a Brexit will likely continue to rumble throughout Western Europe for some time. The infographic below, drawn from the FTI Consulting survey, provides a look at investors’ thinking in 10 strategic areas related to Brexit.