Investors need to recalibrate their expectations for returns in a post-Brexit world, with current low growth and low interest rate conditions set to continue, cautions Eaton Vance.
Brexit’s impact on trade and economic growth is “likely to take time” before becoming clear, and Eaton Vance chief investment officer Payson Swaffield says investors will “likely have an elevated perception of risk”.
“Following what is now a well-known script, central banks are likely to respond with renewed measures aimed at keeping financial markets on ‘Novocain’,” he said.
Mr Swaffield said central banks’ ‘Novocain’ policies will continually “fall short of stimulating real economic growth”, adding that dovish policies have over the past couple of years had less impact on returns.
“In the past two years returns on risky assets fell, weighed down by concerns over faltering growth, credit quality and lack of value,” he said.
The key Brexit issues that need to be addressed are – what the final UK-EU trade relationship would look like, whether other EU nations would consider leaving the union and how this would affect the US and EU economies, Mr Swaffield added.
He warned that investors should not be too quick to act, and instead take a more considered approach to how they handle their portfolio.
“We believe the most important consideration is to avoid hasty action driven by fear, without being complacent. We’ve already witnessed a significant recovery in the UK, European and US stock markets.”