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With the passing of a few days, a few comments on the Brexit.

1. The political impact of the EU exit of the United Kingdom far outweighs the economic impact

2. Quick comments on an event that has few historical precedents are essentially speculation and should not influence a long-term oriented investments strategy

3. Most commentators have concentrated on the economic bear case (more volatility, rising recession risk). Bull case would be that Brexit acts as a game changer for the EU, leading to structural reforms and ultimately reducing the EU to a free trade zone

4. The initial reaction of the financial markets has been what could be expected: sovereign bond yields have fallen, the pound has depreciated, stock prices have declined and prices of ‘safe havens’ have risen

 

German 10-year sovereign bond yield

 Source: Bloomberg

5. With political uncertainty remaining high and political risks skewed to the downside, government bonds and safe havens will remain well supported

6. Brexit provides an excuse for more monetary easing which should limit any downward movements in equity markets

7. In an environment characterized by prolonged uncertainty, investors usually value quality and visibility. Within equity markets, the attributes are generally not found within sectors that are very cyclical or within the financial sector

8. The pricing of financial assets in southern Europe is critically dependent upon the credibility of EMU. These assets would be the main losers in case of a rising risk of a Eurozone break-up

9. Asia on the other hand could benefit from a less aggressive US monetary tightening cycle

10. Longer term, Brexit reflects a rising anti-establishment trend rooted in income inequality and a loss of faith in institutions (political as well as monetary). This is not favorable for capital markets, given that capital has benefited tremendously from what the establishment stood for: free trade, deregulation, globalisation and immigration. Equity valuations do not reflect this.

Guy Wagner, Chief Investment Officer

Originally from a family of entrepreneurs in Luxembourg and with a degree in Economics from the Université Libre of Brussels, Guy joined Banque de Luxembourg in 1986, where he was successively responsible for the Financial Analysis and Asset Management departments, then became Managing Director of BLI - Banque de Luxembourg Investments, an asset management company newly created in 2005.

From July 2022 on, he devotes himself exclusively to his role as Chief Investment Officer, to the management of the portfolios and to the management of the team in charge management of the various funds.

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