‘Brexit is a brake for investors’, OFI’s Mercadal says
The time set for the Brexit referendum is very unfortunate, Jean-Marie Mercadal, deputy CEO of OFI Asset Management, assesses in his latest market comment.
He says the referendum falls into a weak economic and political period as the global growth stagnates around 3% and populist movements gain audience worldwide.
Mercadal says the eventuality of a Brexit is already priced in the markets. He stresses options prices are quite expensive and believes a few other solutions exist to be hedged from the Brexit risk.
If reducing risky positions remains an obvious choice, Mercadal outlines the purchase of German Bunds despite their high price.
Other tracks include buying US Treasury bonds and gold.
Mercadal also highlights an “exotic” solution constiting of purchasing stocks from Deutsche Borse and selling those of London Stock Exchange as the two entities have plans to soon merge apart if Brexit occurs.
OFI’s deputy CEO says the spread in performance will be significant between the two stocks in the event of a Brexit.
Mercadal adds that the eventuality of a Brexit is a brake for investors as its consequences are still blurred and anxiety-provoking.
Financial markets would be much impacted leading to a highly volatile era.
However, Mercadal says a Brexit could turn out good for Europe over the mid-term since it would be an occasion to rethink the functioning of the European Union.
In the event Britain votes for staying within the EU, OFI’s deputy CEO assesses markets would be relieved for a short time and that a rebound could happen.
Fundamentals would take over again in stocks’ analysis, he believes.
If a Brexit does not occur, Mercadal says favouring European equities because they have a better potential over the mid-term.