Tue, Jun 07, 2016 - Page 15 News List

Brexit fears spur investors in Asia to duck for cover

BROAD CONCERN:Asian markets fell yesterday after two polls at the weekend showed that more Britons favor leaving the EU than those who want to stay

Bloomberg

Brexit is back, and investors from Australia to Thailand are ducking for cover.

The pound tumbled and volatility surged yesterday after two polls showed more Britons favor a vote to leave the EU in a June 23 referendum than those who want to stay. That prompted a money manager in Sydney to buy stock-market protection, while a brokerage in Bangkok is advising clients to trim equities and hold extra cash.

“I don’t want to sound scary, but the market isn’t prepared for this,” said Nader Naeimi at AMP Capital Investors Ltd in Sydney, a company that oversees more than US$110 billion.

He has been buying futures contracts on European and US equity volatility, even as he forecasts voters would choose to stay in the EU.

“It makes sense to buy some protection. Fear, worry and volatility are likely to intensify as we get closer,” he said.

State Street Global Advisors, which oversees US$2 trillion, recommends selling UK and European equities. Win Udomrachtavanich, chairman of Ktb Securities (Thailand) Co in Bangkok, says savers should cut the amount of equities they hold and keep the money in cash. Goldman Sachs Assets Management, which oversees more than US$1 trillion, said last week it would be heading into the Brexit vote “with little UK risk in portfolios.”

Asian markets yesterday fell after the weekend polls. Sterling declined against all 16 major peers, while Hong Kong’s Hang Seng Index and Japan’s TOPIX both traded lower. Weaker-than-expected US jobs growth last month also weighed on sentiment, spurring concern the world’s largest economy is struggling.

A YouGov poll for ITV found 45 percent would choose “Leave” at the June 23 referendum, compared with 41 percent picking “Remain.” A separate survey by TNS showed 43 percent for “Leave” and 41 percent for “Remain.”

“I advise clients to take profit on local stocks and hold cash because Britain’s exit from the EU may create turmoil in global equity markets,” Udomrachtavanich said. “Most investors had too much optimism that Britain would continue their stay in the EU. The chance of an exit is rising.”

Naeimi bought futures on the Euro STOXX 50 Volatility Index, called the VSTOXX, as well as on the Chicago Board Options Exchange Volatility Index, also known as the VIX Index. These trades will be profitable if the gauges climb, which happens when investors ascribe a higher chance of stock swings. His fund, which is not limited to any one asset class, has beaten 75 percent of peers over the past five years, Bloomberg data show.

“Our concern is, if the Brexit gets up, it’s going to be basically an ongoing period of problem after problem after problem after problem,” said Mark Wills, the head of the investment solutions group for Asia-Pacific at State Street Global in Sydney. “It’s just going to make Europe on a relative basis uninvestible.”

In Dubai, Hans Goetti is forecasting that if Britons vote to exit the EU, the British pound might fall more than 4 percent against the US dollar from current levels to a 2009 low. Still, the Dubai-based chief strategist for the Middle East and Asia for Banque Internationale a Luxembourg, which has US$42 billion under management, says the repercussions would probably be contained.

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