Q3 2016

Economic and asset allocation views covering Q3 2016. This includes a global trade research note, global strategy update on Brexit implications and a mid-year performance review.

15 July 2016

Schroders Economics Team

Brexit implications

The second quarter saw a powerful rally in sovereign bond markets which took yields to new lows in many major markets. The bond market rally gained added impetus from the UK vote to leave the European Union on 23 June.

The economic impact of Brexit will be felt most keenly by the UK and will also dampen eurozone growth. However, the global impact is negligible as the UK only represents about 4% of world GDP and contagion effects through financial markets have been contained by the central banks.

We would see the main impact from Brexit as being a warning that populist politicians should not be underestimated in the current environment where a large proportion of the population are dissatisfied with the establishment.

If there is a silver lining from the fall out from Brexit it may well be found in the emerging markets. Medium-term prospects remain difficult but the prospect of an easier Federal Reserve rate policy has allowed investors to refocus on fundamentals.

We have yet to see the macroeconomic recovery that would accelerate emerging market growth but as inflation eases and currencies stabilise we have become more constructive on the region.

From feast to famine

Global trade growth has been subdued by historical standards since 2012, and weakened further in 2015. The key question is whether this is a cyclical or structural phenomenon.

We find there is undeniably a structural element, so this weaker trade growth is set to last.This has implications for asset class performance and economic growth, particularly in small, open economies, and so consequently also for policymakers.

Structurally lower interest rates and a global tendency towards currency wars seem a likely outcome.

Read the full report

0 pages | 1,011 kb

DOWNLOAD

Important Information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.