Brexit: Experts see huge volatility on more ‘exit’ concerns

  • PTI, New Delhi
  • Updated: Jun 24, 2016 13:32 IST
An illuminated "In or Out" sign is pictured outside a house in Hangleton near Brighton in southern England, on June 23, 2016. As Britain voted to stay out of EU, experts believe that this will inspire several demands for exit referendums across Europe. (AFP)

With the Brexit causing a big havoc in financial markets globally, the volatility index of Indian stock markets zoomed over 10 per cent and experts warned of a huge volatility ahead on concerns of ‘copycat’ exit referendums in other European nations.

Financial services major Ambit Investment Advisors’ CEO Andrew Holland said Brexit is a huge negative and has far reaching ramifications for global markets and economies.

Andrew, who hails from Britain and has been active in the Indian equities markets since 2006 said there will be speculation over whether Scotland will call for a new referendum given they voted to “remain” in the European Union.

“Elsewhere in Europe other countries may well follow suit and hold their own referendums and concerns would rise as to whether the European Union will disintegrate,” said Holland who has previously been with Merrill Lynch as MD and Head of Proprietary Trading.

“The global and market implications for this are very negative and volatility across all asset classes will be high for some time going forward.

“We could therefore revisit the concerns of earlier this year that the global economy could now take a shift down and central banks have fired most of their ammunition and anyways it is not really working. So politics will be at the forefront of markets and with that huge volatility,” he added.

Tata Asset Management Chief Investment Officer Ritesh Jain said the “so-called unthinkable” has happened with the UK becoming the first country to do so since the formation of the European Union.

Stating that markets are going “haywire” after going into a complacent mode into the lead up to referendum, he said, “And not to forget of our complacency... The Indian VIX is up 10 per cent this morning on news of Brexit”. (VIX is a volatility index)

He further said going ahead “volatility will remain abound as positions get un-wound and markets speculate on the future of Europe.

“The biggest beneficiary will be safe havens: dollar denominated assets (especially short-term US treasury) and gold... the 10-year US Treasury yields is already down 30bps, the most since 2009! The pound is at its lowest in 30 years,” he said.

The British pound was down nearly 9 per cent in early morning trade.

Jain further said Europe has a busy election season in the next 12-36 months and Brexit will only aggravate the separatists elsewhere in the euro zone. Italy already has pro-separatist mayors getting elected in Rome and Turin. Spain goes into elections on Sunday,” he added.

RBI Governor Raghuram Rajan, however, sought to calm the nerves saying markets are trying to factor the consequences of this development and this has already led to sharp corrections in financial markets around the world.

“The Indian economy has good fundamentals, low short-term external debt and sizeable foreign reserves. These should stand the country in good stead in the days to come,” he said, adding RBI was keeping a close vigil on market developments, both domestically and internationally, and will take all necessary steps, including liquidity support (both dollar and Indian rupee, to ensure orderly conditions in financial markets.

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