Brextension – Part 2
Author: The editor's desk
April 12, 2019
The European Union (E.U.) granted British Prime Minister Theresa May another new Brexit deadline this week – one that, so far, has received a decidedly ho hum response from investors. While the extension until October 31 helps alleviate immediate concerns of a hard Brexit, it remains contingent on the United Kingdom (U.K.) voting in European elections late next month and would be moved up to June 1 if they don’t. As such, any relief being felt by investors may be temporary and could give way to more uncertainty soon enough.
Here’s a quick take from members of AGF’s investment management team on the latest chapter in this ongoing Brexit saga:
Kevin McCreadie, CEO and Chief Investment Officer, AGF Management Limited
The deadline extension doesn’t solve all of Europe’s recent economic woes, but after weeks of nail-biting uncertainty, it should provide some temporary relief to investors and could help global equity markets move higher.
Jean Charbonneau, Senior Vice-President and Portfolio Manager, AGF Investments Inc.
An extension eases near-term pressures, but also adds to political tensions within Europe. France’s President Emmanuel Macron, for instance, has warned that Britain’s “euroskeptics” could jeopardize the E.U.’s decision-making as long as the U.K. remains a member. But Angela Merkel, Germany’s Chancellor, has been more accommodating in allowing the U.K. more time. In our view, this typifies a risk that is being overlooked by markets and the longer Brexit drags on, the greater the chance of conflict between E.U. members becomes.
Maksim Piskunov, Associate Portfolio Manager, AGF Investments Inc.
The markets expected the can to be kicked down the road. Now we need a path to break the log-jam. Outside of parliamentary haggling, the next decision to watch is the U.K.’s participation in the E.U. elections on May 23. And if that does not happen and a deal is not reached, a no-deal Brexit is still possible on June 1. It’s the one outcome people want least – so it’s likely to be avoided.
Mark Stacey, Senior Vice-President and Co-Chief Investment Officer, Highstreet Asset Management Inc.
The U.K. market had already priced in a lot of the Brexit bad news at the end of 2018, but since the beginning of this year, it has started to outperform Europe. From a factor perspective, the market has been quite cyclical with higher beta stocks leading the way.
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