Brexit Reaction: Keep Calm and Carry On

In the long run there are certainly issues to be sorted through, but in the short run Brexit is a buying opportunity.

June 28, 2016    |    By Scott Minerd, Global CIO

The British have had their vote, and now the financial markets are having theirs. The news that a majority of U.K. voters decided to leave the European Union was a surprise to almost everybody, and the selloff has been harsh. While this is a historic political event with geopolitical repercussions that we have yet to fully comprehend, from an investor's standpoint, we have seen this story before. Recent market activity is reminiscent of October 1987, when the Dow Jones Industrial Average crashed 22.7 percent in one day, bond yields plummeted, and central banks stepped in to provide emergency liquidity. The important thing to remember is that by the end of the year stocks were up 11.5 percent off the lows, and no recession ensued.

#Brexit should cause #EU and Japan economies to slow, maybe head into recession; however, UK economy will ultimately be stronger.


Expect the same this time around. Last week, the Bank of England pledged up to £250 billion to support the functioning of markets, while the European Central Bank and the Federal Reserve also announced they are standing by to provide liquidity support.

This might be a time that the markets reset to the new facts on the ground in Europe, but ultimately realize that the sky is not falling. In the long run there are certainly issues to be sorted through, but in the short run this volatility represents a buying opportunity for Treasurys and gold. I would keep powder dry for most lower-rated securities and stocks.

Policymakers have to sort out the practical aspects of the new relationship between the U.K. and the E.U.—including when to invoke Article 50 of the E.U.’s Lisbon Treaty, which would start the two-year clock on actually withdrawing from the Union. This might take some time, as lame-duck Prime Minister Cameron has said that his successor will be the one to trigger it. Regardless of the Brexit timetable, I believe that unshackling the U.K. from the E.U. has the potential to provide Britain with new economic freedom and growth in a few years, but this will likely follow a difficult period of transition that weakens it as a global competitor. Of greater concern is the possibility that Brexit will encourage the sizable anti-establishment movements in a number of E.U. countries to push for referendum votes of their own. This lingering uncertainty, along with the economic impact of potentially lower-quality trade relations between the U.K. and E.U. member nations, could add a risk premium to European financial assets for years to come.

While I think the current environment represents a buying opportunity, we are in a rough seasonal period for investing that does not end until September or October. I am also mindful of the possibility that other shoes might drop, such as the collapse of a major hedge fund that may have levered up on the wrong side of this outcome. Nevertheless, this is not going to be a Lehman moment. Global central banks are not only prepared to support market stability, but they also will likely support any banks that are under pressure. Interest rates around the world are likely to stay lower for longer, which will help to offset the confidence shock that Brexit represents. The Chinese yuan has quietly depreciated against the U.S. dollar, which will help Chinese growth conditions. These conditions are positive for credit markets in the near term and we will be focusing our research efforts accordingly on finding compelling relative value opportunities.

While financial markets are pricing in the probable short- and long-term investment consequences of Brexit, I cannot overstate the historical importance of this event. This has been a clear shot across the bow for the post-World War II consensus that free trade is beneficial to working-class living standards. Implicit in the Brexit vote, as well as the political environment in the United States, is the growing popular opinion that nationalism trumps globalization. This does not bode well for global long-term growth. The sky may not be falling, but storm clouds are brewing.

Important Notices and Disclosures

This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2016, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.


September 15, 2023

Third Quarter 2023 Quarterly Macro Themes

Research spotlight on what’s next.

August 22, 2023

Corporate Credit Quarterly Insights - August 2023

Market and portfolio update from our Corporate Credit team

August 21, 2023

Third Quarter 2023 Fixed-Income Sector Views

Technical tailwinds support the market.


2022’s Upside: The Fed Has Put the Income Back in Fixed Income 

2022’s Upside: The Fed Has Put the Income Back in Fixed Income

Anne Walsh, Chief Investment Officer for Fixed Income at Guggenheim Investments, joined Asset TV to discuss macroeconomic conditions, risk, and relative value in the bond market.

Macro Markets Podcast 

Macro Markets Podcast Episode 26: Mortgage-Backed Securities, Structured Credit, Market Liquidity

Karthik Narayanan, Head of Securitized for Guggenheim Investments, discusses value in the residential mortgage-backed securities market and other ABS sectors. Anne Walsh, Chief Investment Officer for Fixed Income, answers a listener question on liquidity. Jerry Cai, an economist in our Macroeconomic and Investment Research Group, brings the latest on the labor picture and an update on China.

Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.