Flash Note 24/06/2016 How to act? Some points I would like you to

Flash Note
24/06/2016
Alex Fusté
@AlexfusteAlex
alex.fuste@andbank.com
How to act? Some points I would like you to
bear in mind.
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Yes. The outcome of the referendum comes as a shock
(rarely has a G7 currency collapsed by a -10% in a single
trading session, as the pound did last night in Asia, to end
at its lowest level against the US dollar since 1985).
Whether the pound and the rest of financial assets will
plunge further will depend on host of political
developments (both in Britain and the rest of the EU). Of
course, I’m referring to the negotiations to disconnect,
and the terms of the agreement. If the negotiation
lengthens, this will be bad sign and will end up affecting
negatively the markets for longer. Nevertheless, these
political events are as unpredictable as the referendum
itself.
As far as to the EU concept, I do not know whether this
will mean a tightening of ties among the other EU
countries. But if Brussels manages to achieve a clearer,
tighter and transparent ties among the EU members, the
Brexit could well end up being a kind of catalyst that will
improve the European stage. The outcome will emerge
only gradually in the months ahead.
How to act? Rather than thinking on a strategic response
(which in my humble opinion would not change much
from our “stay in market but hedged through a
dollarization of your portfolio and the use of long dated
Treasury bonds by the same face value as in your risky
positions” –a strategy that has worked pretty well today-)
I stick now with the idea that maybe this is a time to
behave tactically as well. After having protected positions
in recent months, in the aftermath of today’s shock you
should retain optionality to respond to whatever
opportunities may emerge (for example, by unwinding
some of the risky assets and the hedging assets as a way
to raise cash).
Este documento ha sido realizado por Andbank, principalmente para su distribución interna e inversores profesionales. Este
documento no debe ser considerado como consejo de inversión ni una recomendación de compra de ningún activo, producto
o estrategia. Las referencias a cualquier emisor o título, no pretenden ser ninguna recomendación de compra o venta de
dichos títulos.
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Despite today’s dislocation in financial market, I just want
you to keep this in mind:
o Economic fundamentals around the world has been
gradually improving since 2010, which means that a
risk-on shift is fully justified under a strategic point
of view.
o Nevertheless, this risk-on thesis should be
suspended temporarily right now. Prospects for
trade, investment, banking stability, etc. will be
affected in the upcoming weeks since the UK is a
significant part of the global system. It is to be seen
how this situation affects to the property values (to
whom the British banking system is exposed).
o It is politics, rather than economic data, that will set
the course of financial markets.
o At some point in time, these political and economic
tensions will stabilize, and the “slap to Brussels”
could ultimately have positive outcomes if new
leaders and economic authorities come forward with
more transparent and constructive ideas. Although,
admittedly, these benefits may become apparent
after some previous turbulence.
In summary, remain protected (being in financial markets, but
fully hedged through the instruments I’ve mentioned), but now
with a higher degree of optionality (This is, unwinding a portion
of your portfolio, both in the risky and the hedging part).
Regards,
Alex Fusté
Chief Economist
Andbank
Este documento ha sido realizado por Andbank, principalmente para su distribución interna e inversores profesionales. Este
documento no debe ser considerado como consejo de inversión ni una recomendación de compra de ningún activo, producto
o estrategia. Las referencias a cualquier emisor o título, no pretenden ser ninguna recomendación de compra o venta de
dichos títulos.