Brexit Explainer Series

State Street Explains…

Five things to know about Brexit

InvestorsReacttoSurpriseBrexitVoteThe leave vote was a blow to investor confidence, but how big a blow? Our investor behavior indicators show that investors were prepared for sterling weakness, but the key quesDon is if they will maintain their holdings of UK assets.


0%

25%

50%

75%

100%

Jan-13 Sep-13 May-14 Jan-15 Oct-15 Jun-16

UK equity flows Gilt flows GBP holdings

InvestorBehaviorTowardUKAssets

Per

cent

ile R

ank

Brexit

Source: State Street Global Markets

SystemicRisk*IsBackEuropean systemic risk had begun to normalize, but fall-out from Brexit shows markets are once again fragile and suscepDble to large drawdowns.

EuropeanSystemicRiskHasSpikedFollowingBrexit

Sta

ndar

dize

Shi

ft in

the

Sys

tem

ic R

isk

Inde

x

0.70

0.72

0.74

0.76

0.78

0.80

0.82

0.84

0.86

-4

-3

-2

-1

0

1

2

3

4

Jan-07 Nov-08 Oct-10 Sep-12 Jul-14 Jun-16

European systemic risk index standardised shift (z-score)European systemic risk index level (rhs)


Brexit

Source: State Street Global Markets *Risk of collapse of an enDre financial system or market **Standard score

European systemic risk index standardized shiM (z-score**)

European systemic risk index level

Sys

tem

ic R

isk

Inde

x

Post-BrexitRiskAversionWith Brexit a reality, will investors heed the warnings of global policymakers and take a more measured approach to managing risk? Our data shows investors aren’t risk averse in aggregate, poinDng to "no panic" for now.

RiskAppeFteRetreat?

-8

-6

-4

-2

0

2

4

6

8

Sep-15 Dec-15 Mar-16

Sent

imen

t sco

re, 2

0-da

y ro

lling

aver

age

Multi-asset sentiment score Equity sentiment score Fixed income sentiment score

Investors adding to risk

Investors reducing risk


Brexit

Source: State Street Global Markets *An aggregated value of senDment based on actual behavior

Sen

timen

t sco

re*,

20-

day

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ng a

vera

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r sen

timen

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UKRecessionontheHorizon?Forecasters warned that uncertainty created by Brexit could lead to a recession. We’re closely monitoring our measure of online prices.

PotenFalImpactofBrexitonOnlinePrices

96

97

98

99

100

101

-60 -30 0 30 60 90 120 150 180

Lehm

an/B

rexi

t =10

0

Days before and after shock

US PriceStats around LehmanUK PriceStats around Brexit


Brexit

Source: State Street Global Markets

WheretoWorryNextThe Brexit vote could have repercussions across Europe. But contagion is not guaranteed, as evident with the recent elecDons in Spain.

NaFonal/AnF-establishmentPoliFcalParFesandNaFonalElecFonDates

Sources: ICM, Alco, TNS Poland/GW, IMOP, Sigma Dos, Ipsos, INA, EMG, YouGov


Brexit

Formoreinforma+on,checkoutourBrexitpage:h7p://www.statestreet.com/ideas/ar+cles/brexit.html

ImportantInformaFon:InvesDng involves risk, including the risk of loss of principal. The informaDon provided does not consDtute investment advice and it should not be relied on as such. It should not be considered a solicitaDon to buy or an offer to sell a security. It does not take into account any investor's parDcular investment objecDves, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. InformaDon may contain statements that could be considered forward looking, but outcomes may differ materially from what is expressed. There is no representaDon or warranty as to the accuracy of the informaDon and State Street shall have no liability for decisions based on such informaDon.

CORP-2079Exp.Date:7/31/17

Economy & Finance

Brexit Explainer Series