Kevin O’Nolan, portfolio manager, Fidelity International, comments on market reaction to Brexit and the potential for central bank action: “With Britain voting to leave the EU, we are likely to see significant volatility – particularly for UK assets – the market having almost completely priced in a vote to remain. The FTSE 100 will open sharply down, with the futures off almost 9% and sterling has already fallen more than 10% to the lowest level since 1985. Other major currencies look to have been relatively well behaved; while the euro initially fell in early morning trading against the dollar, it has since strengthened. The Japanese yen briefly reached the 100 mark against the dollar on safe haven flows, but has weakened since – possibly on the back of intervention by the Bank of Japan.
“Elsewhere there has been a broad risk off move with other equity markets off sharply and US Treasuries 25bps lower. I expect UK Gilts yields to fall too although this may not happen in a straight line as investors sell UK assets.
“Central bank action is likely, but the timing of this is uncertain. While we may see intervention today, it’s also possible that the major world central banks will meet over the weekend and discuss coordinated moves to be announced on Sunday.
“The volatility in UK assets is likely to create opportunities as markets overshoot in the short term. Around 75% of FTSE 100 earnings come from outside the UK and the sterling fall should provide support.”
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