Eurozone: What’s the Story After Brexit?

520038463The Brexit result opens a new period of uncertainty for the future of Europe. The hit on consumer confidence and economic growth is expected to weigh on the profitability of European companies, where sectors are expected to be impacted by difference factors. Spillover can be through the financial sector, trade, foreign direct investments and migration flows, as highlighted by the chart below.

Brexist Sensitivity Index

Going forwards we see two possible scenarios for the evolution of the European economy. One is a “Bad Path” in which the uncertainty will continue to put in doubt the prospects of the European project with the consequence of highlighting any kind of fragility, such as the European banking sector, and causing renewed fragmentation. The other is a “Good Path” in which uncertainty will be temporary and will be followed by a recovery period in which things start to work smoothly. Under these two scenarios our GDP growth forecasts change materially, especially in 2017 and 2018. Continue reading

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UK Economy After Brexit: Slowdown or Recession?


Brexit is already showing its effects, starting with currency. The British pound has weakened notably since the Brexit vote and we expect some further weakening before stabilizing at 1.3 against the US dollar. Major effects of Brexit are also expected on confidence and investments, which should impact future GDP growth.

In fact, there will be protracted uncertainty on negotiations with the EU and on the degree of “separation” from the Single Market (with special emphasis on the possibility that London will lose its role as the financial center for Europe). This will put the brakes on the flow of investments to the UK in 2016-2017 and will likely lead to a drop in business confidence, resulting in domestic UK firms to slow their investments. Furthermore, consumers are expected to slow down their expenditures, particularly on durable goods.

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Brexit: What Impact on the Economic Outlook and Investments?

ThinkstockPhotos-100950818Before the UK’s decision to leave the European Union (EU), the global economy was experiencing a deep structural transition. A more sustained and balanced economy was still achievable, despite low growth and low inflation during this process. However, with new uncertainty in Europe post-UK referendum, we have downgraded our global growth outlook for 2016 and 2017. Although we still think the world economy can avoid major disruption, we are less confident than before. We believe that the global economy will remain in a prolonged period of low growth and low inflation, with a risk of political paralysis.

Post-Brexit Uncertainty Alters Our Global Growth Outlook

GDP Growth (YoY %)


Sources: Pioneer Investments, CEIC, as of July 15, 2016.

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Post-Brexit Opportunities in Global Equities

Map Projected on Stock Market ListingsMarco Pirondini is Head of Equities, US and Portfolio Manager of global equity strategies.

Equity performance this year has been driven by a flight to income in a post-Brexit, low interest rate, low growth environment. As a result, sectors that have an income focus, such as utilities and telecommunications, have been among the top-performing this year. In addition, energy has done well due to a rebound in oil and natural gas prices.

Global Equity Performance
MSCI All Country World Index – YTD Sector Performance



Source: MSCI – data as of July 25, 2016. Past performance does not guarantee and is not indicative of future results Continue reading
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ECB Meeting … Gently Down the Stream

Marshall Point Lighthouse

The European Central Bank’s (ECB) Governing Council met today, marking the first of a series of high profile meetings scheduled over the next few days (the Federal Open Market Committee (FOMC) meeting on July 27th, the Bank of Japan (BoJ) meeting on July 29th, Bank of England (BoE) on August 4th), which have become a strong focus for investors globally.

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