Rothschild strategist: Brexit ‘not a game changer’

It would be better for UK business, and thus the country, to remain in the European Union, but UK voters opting  for a Brexit later this month would not be the “game changer” some “Remain” campaigners are claiming, according to Rothschild Wealth Management’s global investment strategist.

The reason he’s not urging the Rothschild WM  portfolio managers, and thus its UHNW individual customers, to make major changes to their investments ahead of the 23rd of June vote, Kevin Gardiner said, is because  “the UK economy, for my money, is likely to remain one of the most dynamic – or, if you like, the least sluggish – of the big European economies going forward…whether we stay in or leave”.

Another reason Rothschild Wealth’s portfolio managers aren’t rushing to make changes, Gardiner, pictured, added, is because they “routinely hold significant weightings in such diversifying assets as options, equity put options and alternative investments”, in addition to keeping “a fair degree of liquidity” within their mix.

Gardiner, a Welshman who has been with Rothschild since 2014, is known in some circles for having coining the phrase “Celtic Tiger” in a 1994 Morgan Stanley report, (a fact noted in Wikipedia’s Celtic Tiger listing). He is also the author of a 2015 book, Making Sense of Markets. His comments on Brexit and other topics came this week at a regular strategy briefing held in Rothschild WM’s City of London offices.

‘Rather we don’t find out’

Gardiner said he personally would rather that “we don’t find out” what would happen if the UK were to vote to leave the EU, because a Brexit would temporarily add to market volatility at a time when things have only just begun to settle down, after a choppy first quarter.

“All other things being equal, from a narrow business perspective, as I say, it’s probably better for business [for us to] stay in than to go out, but as I say, not in a game-changing fashion,” he explained.

“The Brexit debate is not an edifying one, because people feel very strongly about the politics of the European Union on both sides, and they’ve allowed those strong feelings to translate into the economic dimension, where it’s not possible to entertain such strong feelings – or it shouldn’t be, because the economic debate is not quantitative, it’s [actually] pretty subjective, and it’s more balanced than many people seem  to think.

“The reason it’s balanced is because the UK economy is likely to remain one of the most dynamic, or, if you like, the least sluggish of the big European economies going forward, whether we stay in or leave.

“So the direct competitive threat to British business from being excluded from the common market is not quite as large as it used to be; and also, the UK’s structural performance has improved.

“When the UK went into the ‘Common Market’ as it was – ‘Single Market- as it is now –it was one of the weaker economies, and its trading growth rate was a long way behind Germany’s, for example. But that’s the other way around at the moment; the UK is relatively quickly-growing, compared even to Germany, and that makes me feel that it can probably withstand a Brexit, if it has to happen.”

Gardiner’s says his response, and that of the Rothschild Wealth portfolio managers, to the looming Brexit poll, therefore, “rather than trying to second-guess the vote itself, which we know we can’t do”, is to put their faith in the way they’ve structured their portfolios in order to ensure that they’re “relatively resilient to an equity market sell-off” if there were to be one.

And if there were such a sell off, “we’re inclined to think that we’d then probably be looking for bargains, rather than looking to batten down the hatches”.

Glass half full

On other matters – which Gardiner admits he’d rather talk about than Brexit, even if journalists and others seem interested in little else at the moment – he says he and his Rothschild colleagues are taking a “glass half full rather than half empty” approach to current market conditions. This is in spite of the fact that he regards the global markets as inherently cyclical, and even though he knows better than most that the current market expansion, “seven years old this month”, is “already quite long” as such cycles go.

“We know the clock is ticking, but for the time being, we still give the US economy and the global economy the benefit of the doubt,” he explained.

“We know that growth is pretty lacklustre, but we think it’s enough to keep profits reasonably solid. And if that’s the case, we’re still in an environment that, from an investment perspective, probably favours stocks over bonds.”

Given that he doesn’t share some commentators’ view that the world’s economy is on the brink of collapse, Gardiner is disapproving of talk in certain markets, including the US and in continental Europe, of central bank intervention, including “helicopter money”, saying he’s “not sure that central banks really yet need to be considering something as drastic”.

“In this regard, I think central banks may be at risk of indulging in possible mission creep,” he said. “Rather than just standing by, ready to save the world from time to time, as they have to do  – and have been very successful at doing  – they’re starting to feel that they can fine-tune the business cycle.

As history has shown us, attempts to do this usually don’t work.”

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