EU Referendum: no winter, or summer of discontent

by | May 27, 2016

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That’s the view of Richard Buxton, Head of UK Equities at Old Mutual Global Investors, as he talks to Neil Martin about the forthcoming EU Referendum. Given his unequivocal personal views, it threatened to be a short chat.

Richard Buxton is not the sort of City figure to beat about the bush. So when I asked him whether we were heading for BREXIT or not, his answer came back like a heat-seeking missile:  “…this is absolutely not going to happen.”

Interview over then. Well not quite, because Buxton was happy to expand on his views, even though it was pointless talking about what might happen if BREXIT came about. He said: “We can talk about the implications if it were to happen, but I would caveat everything by saying in my view, it is just not going to happen.”

We were talking on a day when the latest poll put the “remain” vote at 55% of the population. Buxton gave short shrift to this though: “Opinion polls are utterly irrelevant. They have been woeful to hopeless in recent elections. People say anything to pollsters, when they bet, it’s their own money. And the odds on from the bookies are pretty consistent; two to one on that we stay.”


Personal view

Buxton is also keen to point out that this is his own personal view and not the house view from Old Mutual Global Investors (OMGI). He explained: “We don’t have a house view, we deliberately don’t have a chief investment officer, we encourage diversity of view, and I’m very happy if people have good discussions and debates.”

And bravely added: “So this is my strong view, and I will happily be held accountable and ridiculed if I’m wrong!”

The reason for Buxton’s strong conviction is based on how the British people behave when it comes to voting. He argues that they are inherently conservative with a small ‘c’ and that they do not vote for radical change, unless they feel the country is in crisis, such as the Winter of Discontent in 1979. And there is no sense of crisis in the UK today meaning, he said, that the people will simply not vote for radical change, for the complete uncertainty of a total unknown.


He said: “There is no precedent for a country leaving Europe, so there is no playbook, you’ve got massive amounts of uncertainty, and people on either side of the debate cannot speak with any degree of certainty as what would happen if we did go.

“And because there is no precedent, you can have all sorts of different opinions, but they are just opinions. You cannot factually state that – oh it will be fine, we’ll still be members of GATT, WTO and be able to trade with our European partners with impunity. Equally it may not be the case that you would have to negotiate every single thing, start from scratch, no-one knows.”

So when push comes to shove argued Buxton, the average voter is not going to sign up and take an enormous leap into the unknown. He said that Europe has always been the hang-up of the right-wing of the Tory party. He said that they believe that Brussels is an “interfering nonsense” and that we’d be far better off as a little Englander. Buxton did not believe this view is generally representative of the bulk of the population.


Current situation

As for the current situation, Buxton highlighted investment banks which have already created baskets of BREXIT stocks and sold them to international investors, and, have already, year to date, under-performed quite materially. These stocks are mostly companies which derive the vast majority of their earnings from the UK economy, including housebuilders and retailers. They also include a number of UK centric financial stocks such as Lloyds Bank and Legal & General. Buxton said that when the referendum results in a vote to stay, then there’ll be a knee-jerk rallying in all of those stocks, alongside sterling.

Buxton commented: “Money clearly has left UK equities. Now whether it all comes straight back in, whether it’s all BREXIT related, or because we’re nervous about equity markets, or is China heading for a hard landing, or is the US rolling over in terms of growth, these uncertainties won’t go away post-referendum.”

He pointed to the fact that there has been dis-investment and the holding back of potential investment, with people hanging onto cash, but with that uncertainty out of the way with a Remain vote following the referendum, investors will take the opportunity of days when the markets dips to dribble money back in.


General Election 2015

Buxton remembered: “We saw exactly that ahead of the General Election 2015. Clearly there was investment held back, and selling ahead of the May election, and thereafter, when markets were weak, particularly we saw it in late August, September and October, there were really quite strong flows into our UK equity funds from people who had been keeping their powder dry. They didn’t jump in immediately the election result was announced, but waited for the next set back in markets, and people were then ready to buy.”

Buxton doesn’t think any of the recent manoeuvrings will change the Bank of England’s outlook on interest rates: “The UK economy was already decelerating a little bit, back end of last year. Again you don’t need to be too cynical to note that the Chancellor had got the feel good, or the feel less bad factor, to its absolute peak in 2015, in time for the general election.

“Clearly the pace of decline in unemployment had been so rapid that inevitably it’s had to slow, and indeed has done; taxes have been raised, quite significantly, so it’s no wonder that leaving aside the uncertainty of referendum, economic activity has slowed a little bit.”


Buxton also noted that although many investment and hiring decisions have been put on hold, the very latest survey data shows interestingly that it is looking pretty positive again for the manufacturing and service sectors. And with uncertainty out of the way, predicted Buxton, you should see some modest pick-up of activity in the economy.

Buxton finished with: “I don’t want to emphasise the degree to which it has decelerated a bit last year. We were growing at two, two-and-a-half per cent, maybe now were growing one-and-a-half to two. At the margin, it’s a little bit softer and I imagine that there will pick up post referendum.

“I don’t think things will change. The monetary policy committee will just continue to be extremely bullish and laid back. There’ll be no need to see any early moves in interest rates.”


Last Word

Buxton’s views echo many in the City of course and from the many conversations I’ve had with fund managers and analysts, I can’t remember one who has been in the Leave camp. This is hardly indicative of the general electorate though. It is an emotive subject and its being said that those over 55, and who will be determined to vote, want out of Europe, yet those aged under 35 want to remain, but they are less keen to make the trip to the voting booths.

Well, we are about to find out which way Britain is going to swing. Are we Little Englanders, or Europeans?

If you want another reasoned view on the implications for the financial services sector on a Brexit vote, take a look at pages 22-25 and read the thought provoking article penned by our Editor-in-Chief, Michael Wilson. It’s entitled Sound and Fury and is recommended reading before the 23rd June.

The result unravelled – Join Old Mutual Global Investors for live online analysis on 28 June

There will be implications for UK investors whatever the outcome of the EU Referendum. Join Richard Buxton and team for a live post-referendum video interview online on 28 June at 9.30am when they’ll be discussing what the result means for UK equity investing. Register now at

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