Invesco Perpetual – Referendum Commentary

Nick Mustoe, Chief Investment Officer

After months of anticipation, UK voters have decided – in an historic move – to leave the European Union some 43 years after joining its predecessor, the European Economic Community, in 1973. The UK government, institutions and wider business community now have the task of addressing a multitude of financial, economic, fiscal and political implications and consequences.

In our view, the decision to leave will likely increase existing market volatility in the immediate aftermath, driven by investor uncertainty over the potential consequences of the outcome, and may see investors moving further into defensive assets. This type of market volatility often leads to price adjustments that are indiscriminate, and can therefore present attractive buying opportunities for fundamental, long-term investors, such as ourselves.

Market consensus appears to be clear that, over the short term, the decision to forego EU membership will likely lead to weakening of sterling and impact UK economic growth. The extent of such an impact and how long it will last can only be speculated on at this time. The more immediate impact on the UK economy and growth will likely be determined by several domestic and global factors, from trade, productivity and capital investments (domestic and direct foreign) to the direction of central bank monetary policy.

“Longer term, we believe the UK economy will not only be able to handle the decision to leave the EU, but continue to thrive…”

Longer term, we believe the UK economy will not only be able to handle the decision to leave the EU, but continue to thrive as we remain optimistic about the UK’s growth outlook. Having experienced some of the strongest growth among the G7 nations over the past four years, we believe the economy is well positioned to handle what lies ahead.

For our part, we have been investing across global equity markets for more than 30 years. And whilst markets have changed, we have always remained true to our investment principles. This event is no different. In doing so, we remain focused on what is in the best long-term interests of our clients. It is our commitment to taking a long-term view that has been the key to the investment performance that we have generated over time.