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Brexometer CommentaryQ3 2018
There’s no shortage of news coverage and commentary regarding the June 2016
decision for the United Kingdom (UK) to leave the European Union (EU). While some
industry experts believe it could take up to 10 years for the UK to fully exit the EU,
short-term developments will impact overall market sentiment.
To help keep you informed of changes in industry perspectives, in November 2016,
we launched the State Street Brexometer, our quarterly survey that tracks investor
sentiment around Brexit developments. In conjunction with PollRight*, we’ve
conducted a survey of 101 professional institutional and alternative investors,
such as hedge funds, real estate and private equity**. The current research was
conducted between 27 July 2018 and 20 August 2018.
Results from this latest survey provide a benchmark view of the change of
sentiment around Brexit.
“Investor sentiment toward UK assets is becoming increasingly bifurcated as Brexit deadlines loom larger. The proportion of all investors expecting either to increase or decrease their holdings of UK assets in the next months rose substantially over Q3. On balance, the optimists, those planning to increase their holdings, are still winning the day — just.”
MICHAEL METCALFE Head of Global Macro Strategy at State Street Global Markets
State Street Brexometer
* PollRight is a market research agency specialising in business-to-business research.
**Countries covered by survey included UK, US, Europe, Central and South America, Middle East, Asia, Africa and Oceania.
What are your expectations of medium-term (three to five years) prospects for global economic growth?
Positive
Neutral
Negative
Don’t know
41.0%
15.0%
1.0%
Q3 2018101 Respondents
36.0%
39.0%
23.0%
2.0%
Q2 2018102 Respondents
43.0%
2
STATE STREET BREXOMETER
Summary of Findings
Uncertainty continues to surround Brexit, with a
no-deal scenario remaining a possibility. Q3 saw a
growing number of investors anticipating that Brexit
would have a major impact on their business operating
model, with 25.7% of respondents believing its impact
would be “significant”. This is the highest score since
the index began, although the overall proportion of
investors anticipating any impact (83.2%) is lower
than the record high score of 87.3% set in Q1 2018.
Appetite for increased holdings of UK assets rose
to the highest level since the index began, at 20.8%.
The previous high of 15.5% was set in Q3 2017.
However, the proportion of investors looking to decrease
their holdings of UK assets also rose, from 13.9% in Q2 to
19.8% in Q3. This is more in line with the historic average,
with Q2’s score notably lower than in previous quarters.
The positive outlook for the medium-term global
economic outlook bounced back in Q3, reaching 43%,
following a dip to 36% in Q2. Q1’s positive outlook of
54.9% remains a historic high. Negative sentiment
for the global outlook fell, from 23% to 15%.
Regulatory reporting issues, such as required under
Solvency II and AIFMD, remain the area that businesses
will need greatest help with following Brexit (28.1%).
This remains the most in-need service, despite having
fallen by nearly 10 percentage points since Q1 (37.3%).
Fund restructuring (16.9%), custody and accounting (12.4%)
and transition management (10.1%) are also areas investors
anticipate needing greater support with following Brexit.
The proportion of investors who believe that asset
owners will increase their level of investment risk over
the next three years fell for the second straight quarter,
falling below 25% (24.2%) for the first time since the
index began. Those anticipating a decrease (31.9%)
fell slightly from 34% in Q2, meaning that a growing
number of respondents believe that asset owners will
maintain their level of investment risk over the next
three to five years (from 29.9% in Q2 to 39.6% in Q3).
“Sterling has remained under pressure, reflecting currency markets’ low expectations with respect to Brexit negotiations, with only a brief rally as interest rates were raised. The extent of negative sentiment, combined with undervaluation, means that the currency tends to rally sharply on more positive news headlines.”
BILL STREET Head of Investments for EMEA at State Street Global Advisors
3
STATE STREET BREXOMETER
Other Highlights
The fund locations that investors believe will be most
attractive for managers looking to expand their cross-
border fund business are Luxembourg (57%) and Ireland
(53.8%). This is followed by the Channel Islands (24.7%),
Germany (20.4%) and France (14%).
Over the next three to five years, over a third (37.3%) of
investors believe that their company will use more cross-
border fund locations. The majority (54.2%) believe that
there will be no change in the current levels, while only
2.4% anticipate a decrease in the level of use of cross-
border fund locations.
State Street continues to work closely with regulators and
clients to prepare for the post-Brexit world. With our strong
presence in Europe and across the globe, and strength in
pan-European structures, we’re ready to partner with clients
to help them navigate complexity and address change.
For more State Street commentary on Brexit, please visit
www.statestreet.com.
What level of impact do you anticipate Brexit having on your business operating model?
Very significant impact
Significant impact
Moderate impact
Slight impact
Very slight impact
No impact
Don’t know
All significant impact
All impact
Q3 2018101 Respondents
2.0%
11.8%
23.5%
31.4%
11.8%
17.6%
2.0%
13.7%
80.4%
Q2 2018102 Respondents
6.9%
18.8%
17.8%
11.9%
13.9%
3.0%
25.7%
83.2%
27.7%
State Street Corporation State Street Financial Center One Lincoln Street Boston, Massachusetts 02111–2900
Important Information
Marketing Communication
All results come from the PollRight survey. PollRight and State Street are not affiliated.
Investing involves risk including the risk of loss of principal. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that State Street expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond State Street's control. Please note that any such statements are not guarantees of any future result. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street's express written consent.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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