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Screenshot of a breaking news alert e-mail from Q2 2017
State Street Corporation (NYSE: STT) today launched the latest findings from its Brexometer Index, a quarterly pulse survey of institutional investor sentiment about the United Kingdom’s departure from the European Union.
The Q4 2017 survey indicates a slight decrease in confidence, with 40 percent of respondents expecting positive global economic growth in the near-medium term (three to five years), a seven percent decrease from the Q1 2017 survey.
In addition, more than one third (36 percent) believe asset owners will not change their level of investment risk over the next three to five years, a 10 percent rise since Q3 2017.
The majority (82 percent) of institutional investors now believe Brexit will have an impact on their business operating models, rising from 72 percent in the third quarter.
Other key findings of the Q4 2017 index include:
- 60% of institutional investors expect their allocation to stay the same – a 7% increase from Q3;
- Over one fifth (22%) of respondents believe Brexit will have significant impact on their operating models, compared to 17% in Q3;
- One in nine (12%) respondents remain uncertain over changes to their holdings of UK assets over the next six months, an eight percent increase from the Q2 survey;
- 27% of respondents believe asset owners will decrease their levels of investment risk over the next three to five years – down 9% from Q3.
Michael Metcalfe, head of Global Macro Strategy at State Street Global Markets said:
The clock continues to tick on Brexit, but there remains limited evidence that financial markets or their participants are discounting a worst-case outcome. Our metrics suggest that the majority of investors still have no immediate plans to change their holdings of UK assets. This has not changed even though the Bank of England is expected to reverse its precautionary interest rate reduction this month and sterling’s undervaluation has halved over the quarter.
Bill Street, head of investments for EMEA at State Street Global Advisors commented:
Despite major waves in headlines, Brexit negotiations will likely have limited impact on markets until 2018 when the contours of a transitional and permanent agreement become clearer. Sterling in particular has risen from its lows earlier in the year. This partially reflects US dollar weakness but also greater than expected resilience from the UK economy and expectations of a rate rise by the BoE. However, it still remains undervalued against most currencies and is likely to continue to show volatility while Brexit uncertainty remains.