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“Added to this was the fact that as time progressed, the reality sunk in that the Brexit vote would not result in a sudden move or collapse, and that it would take at least two months before anything sensible could be said on what would happen next. Stocks rebounded with especially the FTSE 100 defying the odds by breaking above the pre-Brexit close, helped by the decline in the British pound.”
“Sure, the two-month outlook is pretty stable and is likely to be relatively uneventful, but that should not be mistaken to mean that business is back to basics. Taking our cue from the UK economy, we would say that we are much more on an either-way-you-lose outcome.”“Either the UK economy escapes mostly unharmed, with UK and European earnings only marginally impacted, which gives a clear signal that the downside of leaving the EU is not as bad as it is made out to be, opening the way for other member states to organize and win exit referendums. This is the scenario in which the European market starts to disintegrate, which would ultimately mark the end of the Eurozone as well.”
‘We have set up a short pound position versus the dollar’“As such, we have been selling European stocks and are now on balance in the process of decreasing our equity exposure,” says Daalder. “Additionally, we have set up a short pound position versus the dollar, as we believe that sterling is the logical variable for the UK to ‘use’ to alleviate the economic pain. The UK runs a current account deficit of close to 6% of GDP, with the EU acting as its biggest trade partner.”