This week, the World Bank downgraded its global growth outlook to 2.4% for 2016 and 2.8% in 2017. These forecasts have given the Fed further cause to hesitate over the next rate-hike. Meanwhile, many investors are setting up short-term hedging strategies ahead of the imminent Brexit referendum. As investors have struggled to grasp the full implication of these factors, financial markets have tended to drift with no particular trend, in thin volumes. Decisions appear therefore to have been suspended, pending the vote by the British public, who must be wondering why they have been asked to provide an answer to such an absurd question, since no one understands the potential economic repercussions of the outcome.
Analysed in pragmatic terms, if the Brexit camp wins the referendum, the potential sell-off among European markets will provide an opportunity to benefit from lower prices to invest. Current PE levels (15x 2016 estimates) provide insufficient leeway for the time being, other than among cheaper strategies or specific stock-picks, such as value plays, special situations and thematic investments.
On the other hand if the Bremain camp wins, then non-resident investors may decide to progressively roll back into European equities, having bailed out many weeks ago, despite heavy intervention form the ECB. The question as to whether the referendum harbours any tactical market risk opportunities can therefore legitimately be asked. It may also perhaps provide fresh political momentum towards transforming Europe in the same way, as the euro zone has radically changed over the past five years. In terms of investments, a long-term approach must be adopted, notably among equities, and particularly when bond yields have been crushed by the central banks.
Events in human history, sometimes even the worst atrocities, have not prevented the inexorable progress of global wealth production over the past two centuries. Amid the flood of sensationalist news, investors, sometimes overwhelmed by the speed of information flow, lose sight of the essential fact that today’s risks and volatility are the sources of tomorrow’s returns.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in June 10th, 2016.
This promotional document is a simplified presentation and does not constitute a subscription offer or an investment recommendation. No part of this document may be reproduced, published or distributed without prior approval from the investment management company.
DNCA Investments is a trademark held by DNCA Finance