Stock markets: the crystal balls turn cloudy

Shares in asset managers were hit this morning following the Brexit result as commentators assessed wider implications for stocks.

Schroders’ share price had tumbled 20% at one point.

“Shares in asset managers, whose income is dependent on the level of financial markets … experienced heavy losses. London’s largest listed fund manager Schroders tumbled 20%, emerging markets-focused Ashmore declined 14.3% and Jupiter Asset Management has fallen 14.1%,” noted Russ Mould, investment director at AJ Bell.

At Jupiter itself, Edward Bonham Carter warned it could be “weeks or months” before markets work out the implications of Britain’s leave vote and volatility will potentially be as bad as in the financial crisis.

Bonham Carter, who is vice chairman of Jupiter Fund Management, said: “The question everyone will want the answer to but is impossible to predict is when the volatility will end and markets will bounce back.”

The FTSE 100 fell 6.7% and the FTSE 250 by 10.3% in the first half hour of trading this morning, and bargain hunters are already “pouncing on the weakness”, said Mould.

But Bonham Carter warned there will be a long wait for a recovery if history is anything to go by. After the FTSE 100 suffered its greatest ever drop in a single day on October 20, 1987, it took two-and-a-half years to reach its previous highs. After the 2008-2009 crisis the FTSE 100 took five-and-a-half years to reach its pre-crisis high, said Bonham Carter.

Trevor Greetham, head of multi-asset at Royal London Asset Management, said: “Unsurprisingly, stock markets have been hit very hard. This could create a longer term buying opportunity for stocks as markets tend to overreact to bad news in the short term.”

He added: “There is a silver lining though, turmoil in Europe will stay the Federal Reserve’s hand in hiking interest rates and will probably trigger a new round of stimulus.”

Mould noted this morning that housebuilders took the biggest hit from the EU referendum decision as investors fretted about a slump in the property market. Taylor Wimpey was down 40.3% at one point this morning, for example.

“Broader property-related stocks have also dragged down. Commercial property developer British Land declined 28.9% as demand could be hit for its office blocks if foreign companies downsize their UK operations.”

Back at Jupiter, Bonham Carter warned that volatility could get worse than in the financial crisis.

“Certainly from an investment perspective, it will be weeks or months before the full implications start to be understood and during this period we will need to be prepared for the potential for a greater level of volatility in financial markets than we have seen since the end of the financial crisis of 2008-2009.”

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