Brexit risks mean underweight UK equities - Investec

By Imogene Wong

Added 6th April 2016

Investec Asset Management said it has reviewed the portfolio to avoid unnecessary risks that could result if the UK votes to leave the European Union.

Brexit risks mean underweight UK equities - Investec

“We have begun raising the hurdles for investments into UK stocks in the portfolio and are explicitly considering the risks a Brexit scenario would pose to individual companies,” South Africa-based Investec said in a recent report.

It said the weighting to the UK is now 300 basis points underweight.

Those include an assessment of trade exposure between the UK and Eurozone, as well as currency risk, for instance, on the UK-domiciled banks doing business in the Eurozone under the passport regime.

It would also look into the “second-order effects”, such as the impact on London-focused house builders amid lower capital inflow into the British housing market.

Investec estimated that the European markets could plunge 21% from its annual peak in the case of a Brexit, using the assumption that average annual stock market volatility is around 13-21%.

While Investec did not predict the outcome of the June 23 vote, Axa Investment Managers said in a recent report that it believes “the UK is most likely to remain in the EU”.

Some asset managers, such as Blackrock, warned of “big risk, little reward” for the UK if it decides to leave the EU.

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