Macroscope | Why Brexit has been but a blip in financial markets
- Despite the worries of a no-deal Brexit, narrowly averted this week by a deadline extension, fund managers tend to see it as an idiosyncratic risk that’s potentially less damaging than systemic threats, such as the US-China trade war
International investors, particularly those who trade Britain’s volatile currency, cannot say they have not been warned of the damage that a no-deal Brexit would wreak on the UK and European economies.
Yet financial markets have never taken much notice of the bleak forecasts of the consequences of a messy divorce.
While the British pound plunged 19 per cent against the US dollar in the four months following the Brexit referendum in June 2016, it rose 10.5 per cent in 2017 and has continued to experience sharp swings in response to the twists and turns of the Brexit saga. This year, sterling has been the best performer among the world’s most liquid currencies, according to Bloomberg. In equity markets, while Britain was the least favoured region in a global fund manager survey published by Bank of America Merrill Lynch last month, the FTSE 100 index is still up by more than 20 per cent since the referendum, mainly as a function of broader gains in global equities.
More importantly, despite constituting one of the most momentous political events in Europe since the fall of the Berlin Wall in 1989, Brexit has never been a key determinant of sentiment in financial markets.