October 19, 2016 (London, UK) – While the initial reaction to the U.K.’s decision to leave the European Union sent market shockwaves around the world, political instability in Britain, and confusion abroad, J.P. Morgan Private Bank discusses investment opportunities for long-term investors. In its recent edition of EMEA Perspectives, J.P. Morgan’s Rajesh Tanna analyses trends and investment themes for patient investors.
“While uncertainty surrounding Brexit is adding to existing anxiety about Europe’s banking system, economic data over the next six to nine months will reveal the full impact of recent events,” said Rajesh Tanna, senior portfolio manager at J.P. Morgan. “Fortunately, major central banks continue to be supportive with their accommodative monetary policies, and the chances of any significant tightening in the foreseeable future remain low.”
J.P. Morgan Private Bank analyses show that although there are pockets of growth, the impact of Brexit has led to further downgrades of consensus expectations in anticipation of a drop-off in earnings and profits growth. On these lowered expectations, this year’s earnings seasons have so far been broadly positive for European companies, but firms continue to guide for caution as the full impact of Brexit is yet to be felt.
“The uncertain outlook should not distract investors from seeking exposure to reasonably stable investment trends and companies that may deliver consistent growth,” Tanna added. “At a time of heightened uncertainty, exposure to large, geographically diversified companies can help offset regional risks.”
Although markets tend to be effective discounting mechanisms, they may have overreacted in the initial aftermath of the referendum. For example, the suspension of commercial property fund redemptions has precipitated a broader sell-off in the U.K. property sector including housebuilders and other asset managers. This situation may have opened up value opportunities, including emerging markets because any economic uncertainty is probably more than discounted already.
“Emerging markets have been less popular with investors over the past three years owing to slowing growth and weak commodity prices, but long-term growth trends persist,” Tanna said. “The stabilization of emerging market currencies, after a long period of weakness and against the backdrop of a more cautious stance by the Federal Reserve in raising interest rates, makes European companies with exposure there incrementally more attractive.”
Although the U.K. government recently provided clarity on the timing of the U.K.’s exit from the European Union, J.P. Morgan Private Bank believes the full effects will be longer term. This makes disciplined investment research essential in order to continue seeking out attractive, long-term investment opportunities as investors ride out the Brexit wave.
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J.P. Morgan Private Bank is a global financial leader providing advice and customized solutions to wealthy individuals and their families. The firm leverages its broad capabilities in investing, tax and estate planning, family office management, philanthropy, credit, and special advisory services to help our clients advance toward their own particular goals. For more than 150 years, the Private Bank’s comprehensive and integrated approach, commitment to innovation and integrity, and focus on client service have made J.P. Morgan the advisor of choice to those of significant wealth around the world. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service. J.P. Morgan International Bank Limited is authorised and regulated by the Financial Services Authority.
Jason Lobo, J.P. Morgan Private Bank, +44 20 7742 7305