The triggering of Article 50 by the UK government will most likely play out in the currency market, said one fund manager today among a flurry of comment from the funds sector.
Howard Cunningham, fixed income portfolio manager at Newton Investment Management, said: “We certainly see no rational reason why the triggering of Article 50 should be a genuine shock which causes sterling to sell off and gilt yields to collapse, although we should expect more volatility ahead.”
Gilts have remained highly correlated with other major government bond markets since the vote for Brexit last summer, he said, adding: “To us, it seems likely that currency markets will be where most of the action will play out. Sterling is likely to take a few blows, as the trade and current account deficits start to weigh as long as negotiations continue.”
Neil Williams, group chief economist at Hermes Investment Management, said: “After nine months in the departure lounge, the exit door is now open, but it removes only some of the uncertainty for investors.”
The biggest question now, he said, is about the length of the journey ahead. “I fear our negotiations could stretch well beyond the two years assumed by Article 50.”
Stephen Burke, group development director at regulatory adviser Cordium, commented on funds infrastructure, saying providers needed to create “EU27” funds by setting up new structures in Ireland or Luxembourg, or have a strategy for existing funds.
As for the outlook for the UK’s asset management industry, which he said was bigger than the “next three largest European centres put together, Burke said: “It is our view that it will not be leaving London any day soon. The biggest concern that most firms have is attracting and retaining talented people. While the UK and the EU27 both seem to be committed to doing the right thing it may be some time before this is settled.”
Similarly, Steve Grob, director of strategy at software provider Fidessa, said: “The UK might be Brexiting, but it is not going away. In financial services it’s an integral part of the eurozone. The UK’s dominance is due to many reasons — structural, cultural and legal — and this has taken decades to develop. Trying to dismantle this will not be easy and, more to the point, will harm mainland Europe just as much as the UK.”
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