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A Brexit could cause a major paradigm shift, both in macroeconomic terms and in the financial markets, according to experts at Natixis Asset Management

27.05.2016

On 23 June 2016, a referendum will be held on the United Kingdom’s continued membership of the European Union. As the Brexit and Bremain campaigns intensify, experts at Natixis Asset Management have examined the macroeconomic impact and the consequences for the financial markets of both options. Their analysis indicates that Brexit would cause a major paradigm shift in Europe from both a political and economic perspective.

A major European challenge

According to Philippe Waechter, Director of Economic Research, the referendum raises many questions about the economic and political consequences for the UK, and also for the entire European Union (...) Although the electorate’s decision is primarily political, it will have a major economic impact.

Potentially volatile European equity markets

In general terms, if Brexit becomes a reality, equity markets in Europe may experience a shock, the magnitude of which is still difficult to estimate (5% to 10% or more), in view of the likely macroeconomic impact and trade links between the EU and the UK. The much more cautious approach of international investors with regard to Europe (with negative flows on European equity funds in February) is the first materialisation of this risk.

Strong and divergent reactions on the bond market

On the bond markets, Brexit is seen as the greatest threat since the sovereign debt crisis in the Eurozone (...) Brexit would result in a dramatic increase in uncertainty and thereby an increase in volatility and consequently strong risk aversion, which would in turn affect the risk premiums of all asset classes.

 

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