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State Street Corp, a U.S. custody bank with $2 trillion in
assets under management, added that fewer than a third of
investors believed that asset owners would decrease risk levels
over the next three to five years.
State Street's Brexometer is a quarterly survey of institutional
investor sentiment toward the UK's divorce from the European
Union, a process Britain is seeking to trigger in March later
this year.
On Tuesday, UK Prime Minister Theresa May said that Britain will
leave the EU single market, setting a course for a "hard Brexit".
State Street surveyed 111 institutional and alternative
investors, including hedge funds, real estate and private equity
between 12 December 2016 and 4 January 2017.
"Questions over timing of the UK’s ultimate split from the EU
and the nature of their future relationship still linger and
have the potential to weigh on both the economy and the pound,"
said Michael Metcalfe, head of global macro strategy at State
Street Global Markets.
"Nevertheless, thus far at least, the extremely gloomy pre-Brexit
predictions for the UK economy and asset markets look well off
the mark,” Metcalfe said.
Beyond asset allocation decisions, however, the impact of UK's
decision to leave the EU is likely to be felt notably on
regulatory reporting requirements while 80 percent of the
investors surveyed said Brexit will have an impact on their
operating model.
Roughly 2 percent of the respondents said their holdings of UK
assets are likely to decrease significantly while 8 percent were
undecided at the time of the survey.
Britain's Brexit vote sent markets tumbling, with the
pan-European STOXX 600 dropping 7 percent and the FTSE 100
falling 3.1 percent on June 24 2016, the day after the
referendum.
However, both have snapped back since with the exporter-heavy UK
bluechip index hitting record highs earlier this month largely
on the back of the impact of a significantly weaker sterling. In
US dollar terms, however, the index is still nursing losses from
pre-referendum levels.
Sterling <GBP=>, however, has lost nearly 18 percent of its
value against the U.S. dollar since last June's Brexit vote.
Trading in the currency has been punctuated by particularly
sharp bouts of volatility, raising concerns that international
investors might lose appetite for sterling-denominated assets.
Graphic on sterling: http://tmsnrt.rs/2hwV9Hv
Broader European equity markets struggled relative to other
developed markets last year as sluggish growth and a busy
political calendar pushed investors looking for better returns
elsewhere.
(Reporting by Kit Rees, Editing by Vikram Subhedar)
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