{"id":52604,"date":"2016-05-30T00:40:00","date_gmt":"2016-05-29T22:40:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/a-brexit-could-cause-a-major-paradigm-shift-both-in-macroeconomic-terms-and-in-the-financial-markets-according-to-experts-at-natixis-asset-management\/"},"modified":"2016-05-30T00:40:00","modified_gmt":"2016-05-29T22:40:00","slug":"a-brexit-could-cause-a-major-paradigm-shift-both-in-macroeconomic-terms-and-in-the-financial-markets-according-to-experts-at-natixis-asset-management","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/a-brexit-could-cause-a-major-paradigm-shift-both-in-macroeconomic-terms-and-in-the-financial-markets-according-to-experts-at-natixis-asset-management\/","title":{"rendered":"A Brexit could cause a major paradigm shift, both in macroeconomic terms and in the financial markets, according to experts at Natixis Asset Management"},"content":{"rendered":"

On 23 June 2016, a referendum will be held on the United Kingdom\u2019s continued
\nmembership of the European Union. As the Brexit and Bremain campaigns intensify,
\nexperts at Natixis Asset Management have examined the macroeconomic impact and
\nthe consequences for the financial markets of both options. Their analysis indicates
\nthat Brexit would cause a major paradigm shift in Europe from both a political and
\neconomic perspective.<\/strong> <\/em><\/p>\n

A major European challenge<\/strong><\/p>\n

According to Philippe Waechter, Director of Economic Research, the referendum raises many
\nquestions about the economic and political consequences for the UK, and also for the entire
\nEuropean Union. \u201cThe referendum will take place against a worrying backdrop for Europe,
\nwhich is far from returning to the dynamic of growth and expansion that prevailed before the
\ncrisis of 2008, resulting in high unemployment, and thus providing a potential risk of social
\nand political instability,\u201d<\/em> he explained. Although the electorate\u2019s decision is primarily political,
\nit will have a major economic impact.<\/p>\n

Brexit would create significant problems for international companies based there. While
\ninvestments in Britain are mainly linked to a combination of the flexibility of the UK economy
\nand direct access to the single market, Brexit would change the rules by closing, at least for a
\ntime, this access to the single market. It may therefore result in a freeze on direct investment
\nin Britain while the progress of negotiations with the European Union is assessed. \u201cHowever,
\nthe outcome of these negotiations is very uncertain,\u201d<\/em> added Philippe Waechter. \u201c If the United
\nKingdom wishes to limit the impact of Brexit on trade and thus on the economy and
\nemployment, it will have to establish a new model, which will take time and will be
\ndetrimental to the country\u2019s economy.”<\/em><\/p>\n

The financial sector, which accounts for approximately 10% of UK GDP, would also be greatly
\naffected. The rule change associated with Brexit would limit the UK financial system’s ability
\nto access financial structures in the euro area. The City may lose a large part of its eurodenominated
\ntrading activity. Furthermore, we can expect a significant outflow of Europeans
\nwho have settled in London. This could have a major impact as, besides the strictly banking
\nactivity, the population structure will change, penalising the very dynamics of the economy of
\nLondon and therefore of the UK.<\/p>\n

These economy-related elements will have an even greater impact from a political
\nperspective. The United Kingdom will have to negotiate political and strategic issues globally
\non its own; it will no longer have the support and backing of the EU in negotiations. Its
\npolitical weight could certainly suffer. <\/p>\n

At the same time, a Brexit would be a significant factor of instability for the European Union,
\nsince it would remove the perception of irreversibility that has prevailed since the beginning
\nof European integration. \u201cWhile one year ago, the possible exclusion of Greece was punitive in
\nnature, in the case of Britain, the interpretation would be in the order of \u2018I don\u2019t want to live
\nwith you anymore,\u2019\u201d<\/em> added Philippe Waechter. \u201cIt is much stronger and could provide an
\nincentive for other countries to leave the European Union.\u201d<\/em> Brexit could thus be seen as an
\nopportunity to fundamentally change the shape, scope and dynamics of the European Union.<\/p>\n

\u201cThat is why a political initiative is crucial, regardless of whether a Brexit takes place. Even if
\nthe UK remains in the EU, as the risk of Brexit was so strong, hopefully Europeans will take
\naction to strengthen the dynamic of the European Union. Yet again, the British have been the
\nstimulus required to reinforce European integration,\u201d<\/em> concluded Philippe Waechter. <\/p>\n

Potentially volatile European equity markets<\/strong><\/p>\n

European stock markets appear still somewhat unmoved by the risk of Brexit. \u201cEquity markets
\nappear to be indifferent, and there is no evidence of an overall underperformance of the London
\nfinancial markets,\u201d<\/em> explained Yves Maillot, Director of European Equities Investment.<\/p>\n

\u201cNevertheless, in recent weeks we have observed a clear underperformance of domestic UK
\ncompanies compared with their internationally focused, export-oriented counterparts, due to the
\ndrop in the pound sterling, which has lost about 12% against the euro in the last six months.\u201d<\/em><\/p>\n

According to Maillot, Brexit would cause a particularly difficult situation for British banks, which
\nare very focused on their domestic market, as well as for the financial markets and the financial
\nindustry in general. \u201cIndeed, the financial industry would no longer benefit from \u2018European
\npassports\u2019, allowing it to sell its services freely within the Union, despite the fact that 75% of
\nEurope\u2019s investment banking and finance business is located in London. \u201cIn this case, we will
\nvery likely see a transfer of structures. Similarly, some foreign banks whose activity (GDP,
\nvolume of loans) is very sensitive in the UK, are in a weak position,\u201d<\/em> added Yves Maillot.
\nIn general terms, if Brexit becomes a reality, equity markets in Europe may experience a shock,
\nthe magnitude of which is still difficult to estimate (5% to 10% or more), in view of the likely
\nmacroeconomic impact and trade links between the EU and the UK. The much more cautious
\napproach of international investors with regard to Europe (with negative flows on European
\nequity funds in February) is the first materialisation of this risk. \u201cKeeping the UK in the EU would
\nbe a genuine relief for the markets,\u201d<\/em> concluded Yves Maillot. <\/p>\n

Strong and divergent reactions on the bond market<\/strong><\/p>\n

On the bond markets, Brexit is seen as the greatest threat since the sovereign debt crisis in the
\nEurozone. \u201cTo date, the reaction on the bond markets has been varied: either steadfastly
\nignoring the risk of exit, as with the Gilt or corporate credit market, or strongly anticipating it
\n(as evidenced by the significant widening of spreads of British banks and sovereign CDS, or the
\nfall in sterling),\u201d<\/em> explained Philippe Berthelot, Director of Credit Management. <\/p>\n

However, Brexit
\nwould result in a dramatic increase in uncertainty and thereby an increase in volatility and
\nconsequently strong risk aversion, which would in turn affect the risk premiums of all asset
\nclasses. \u201cThe UK, for which some metrics, such as twin deficits, are worse than those of Greece,
\nwill have its decisive moment, which will not leave its European neighbours untouched,\u201d<\/em> added
\nPhilippe Berthelot. Besides the fall in value of the currency (GBP), there would be repercussions
\nfor rates (short and long-term) and for all credit obligations issued by the United Kingdom. \u201cIf
\nthe Bremain vote is successful, the currency would regain the ground lost in the last six months
\nand British bank bonds would provide excellent opportunities\u201d<\/em> concluded the expert.<\/p>\n","protected":false},"excerpt":{"rendered":"

On 23 June 2016, a referendum will be held on the United Kingdom\u2019s continued
\nmembership of the European Union. As the Brexit and Bremain campaigns intensify,
\nexperts at Natixis Asset Management have examined the macroeconomic impact and
\nthe consequences for the financial markets of both options…<\/p>\n","protected":false},"author":20,"featured_media":52602,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,2073,1854,1651,2087,2068,1678],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/52604"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=52604"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/52604\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/52602"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=52604"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=52604"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=52604"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}