State Street Quarterly Brexometer Index Reveals Latest Investor Sentiment towards Brexit

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State Street Corporation launched the latest findings from its Brexometer Index, a quarterly pulse survey of institutional investor sentiment on the economic impact of Brexit.

The Q1 2018 survey indicates an increase in confidence, with 55 percent of respondents expecting positive global economic growth in the near-medium term (three to five years), a 15 percent increase from the Q4 2017 survey.

However, despite increasing optimism towards the global economy, the survey suggests that 24 percent intend to reduce their holdings of UK assets in the next six months. This is a six percent increase from Q4, and greater than the average throughout 2017.

In addition, 37 percent of investors continue to believe regulatory reporting, such as that required under Solvency II and AIFMD, is the area that businesses will need the greatest help with following Brexit; a seven percent increase from Q4.

Other key findings of the Q1 2018 index include:

  • More than one third (35%) of respondents believe asset owners will increase their level of investment risk over the next three to five years, up 9% since Q1, 2017
  • 11% of respondents expect negative growth in the medium-term (three to five years), dropping 8% from Q4
  • The majority (87%) of institutional investors believe the economic impact of Brexit will have an impact on their business operating model, a 16% increase from Q3 2017

“Investors are more concerned about holding UK assets at time when they are becoming increasingly optimistic about the global economy,” said Michael Metcalfe, head of Global Macro Strategy at State Street Global Markets. “While a rising tide is supposed to lift all boats, the weight of Brexit uncertainty is now suppressing, although not yet submerging, attitudes toward UK assets.”

“Sterling remains undervalued against most currencies,” said James Binny, global head of Currency at State Street Global Advisors. “Against the Euro it has remained in narrow range recently, at a discount to fair value, which is likely to remain until greater clarity regarding Brexit emerges. The undervaluation against the US dollar has decreased, reflecting dollar weakness rather than sterling strength.”