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Manager views: how Brexit will affect Asian assets

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Manager views: how Brexit will affect Asian assets

The UK’s EU referendum result last Friday caused shockwaves after the Leave vote beat out the Remain vote - 51.9% versus 48.1%.

It was a result that stunned financial markets and led to panic among investors, as very few were prepared for the resulting volatility.

Citywire Asia collated the views of top manager groups to see how they are positioning their portfolios.

Tim Orchard, Fidelity International

CIO, Asia Pacific ex-Japan

I expect to see continued volatility and uncertainty, something financial markets generally don’t like.

Shorter-term, we are likely to see increased demand for safe haven assets such as gold.

Now that the UK has voted to leave the EU, the actual process of leaving and negotiations around this will be complex and drawn out. Then there is the possibility of a domino effect happening to countries within Europe so uncertainty is likely to prevail.

From an Asia Pacific perspective, a ‘risk-off’ environment doesn’t bode well for emerging markets or perceived higher risk assets like Asian equities.

However, the majority of our Asian holdings have a domestic focus; Asian corporates earn around 60% of revenue and profits from the actual Asian region.

Clifford Lau, Columbia Threadneedle Investments

Head of fixed income, Asia Pacific

While Asia’s direct trade, financial ties and economic links to the UK are considered limited, the longer-term implication for Asia is how the rest of the European market will be affected, growth wise.

This could drag down the economic prospects of those Asian economies which are highly dependent on external trades.

We would expect Korea, Singapore, Hong Kong, Thailand, Malaysia to see growth prospects continue to get squeezed down, and accommodative fiscal and monetary policies could potentially track the aggressive approach taken by some developed markets, such as negative policy rates.

If the situation remains unsettled, Asian local rates would be kept at the current extremely low ranges and Asian FX would be volatile in anticipation of capital outflows, whereas Asian credit spreads should find good support.

Endre Pedersen, Manulife Asset Management

CIO, fixed-income (Asia ex-Japan)

Neal Capecci, Manulife Asset Management

Portfolio manager, fixed-income

The UK vote for Brexit in the EU referendum triggered a broad-based risk aversion in global financial markets.

Subsequently, safe haven currencies (such as the US dollar and the yen) rallied, government bond yields fell, and corporate credit spreads widened.

Manulife AM's Asia Total Return Bond and Asian Bond Absolute Return strategies are primarily investing in Asian fixed income markets and do not hold a direct exposure to European markets.

The Asia Total Return Bond portfolio has been de-risked over the past two months. We have taken profits from strong performance gains since the start of the year. Corporate credit exposure has been de-risked and the strategy has been overweighting high quality credit names.

The Asian Bond Absolute Return strategy is also defensively positioned. Overall, the Pan Asia portfolios are positioned to be overweight US dollar bonds and underweight Asia ex-Japan local currencies. We do not anticipate Brexit leading to any material negative impact on the portfolios.

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