Brexit Shock: How Are Global Markets Faring 4 Weeks After The Vote?
If there is one thing the global marketplace does not react well to, it's uncertainty—which is exactly what Brexit incited. But on the (roughly) one-month anniversary of Great Britain’s vote to withdraw from the European Union, markets are finally stabilizing—particularly in the US.
The global financial services industry and commercial real estate sector were genuinely surprised when the June 23 results were tallied and 78% of the UK’s population turned up to vote—52% in favor of leaving the EU.
The initial reaction? Uproar. Stocks plummeted and the British pound dropped to a 31-year low as the future looked bleak and the economic effect on a global scale remained uncertain. But the turmoil didn’t last long.
“To me the reaction the next day in the markets was an overreaction,” Georgia State University economist Rajeev Dhawan (below) tells Bisnow. “The markets didn’t think Brexit would happen so they were shocked and they overreacted. But, as time has gone by, the US stock market seems to have settled and moved on, while the rest of the world is still digesting it.”
Uncertainty Persists With David Cameron’s Exit
As the markets were continually hit with new information regarding the referendum vote, the volatility persisted, Rajeev says.
“Every time it took a turn, the markets would react because markets don’t like this type of uncertainty. The issue is it's going to take some time before the UK finds its feet,” he tells us.
Such was the case when UK Prime Minister David Cameron stepped down following the vote.
Cameron (left) abruptly halted his six years of service after the UK decided to turn its back on the EU due to growing concerns regarding EU policies—such as high levels of immigration and whether to keep the British pound.
Britain has been a member of the EU, the political and economic collaboration between 28 European countries, since the early 1970s, and newly elected Prime Minister Theresa May (right)—the second female PM—will try to unite a nation divided as she walks it through the roughly two-year-long process of withdrawing from the EU.
Brexit's Impact On US Markets
Within two days of the referendum vote, US stocks began to climb and investors relaxed as they quickly realized Brexit’s economic uncertainty wouldn’t have much impact on the health of the US economy.
“Obviously you had the momentary freak-out of the markets for a couple of days, but when you think about the US exchanges, why would it matter? What possible difference could Brexit mean for the US? It’s just completely illogical for a couple of reasons,” Beacon Economics principal Christopher Thornberg (above) tells Bisnow.
Though historically Britain and the US are closely tied, when it comes to economic flow, the UK is not a huge partner, Christopher says, adding the US barely does 3% in trades with Britain. The economist also reiterated investors aren’t taking into account the two-year (or more) process by which the UK will renegotiate its terms with the EU to withdraw. That time will allow for global markets to stabilize, even in the UK.
“It’s evolution, not revolution,” he says. “And that means because (the withdrawal) will be so gradual, it will allow the impact to the economy to somewhat heal around the new paradigm.”
How US Commercial Real Estate Has Fared Following The Vote
Though Christopher insists the effect of Brexit on the US is minimal, international real estate attorney Edward Mermelstein (above) tells Bisnow the commercial real estate sector is benefiting, and will continue to benefit, from the UK’s economic struggles.
“In the last month the US has become a beneficiary of this turmoil taking place,” he says. “We have seen many investors—whether its sovereign funds or institutional funds—indicate that in the near future the US will become more of a focus for investment capital.”
Investors continue to shift away from volatility, including markets in the UK and Europe, and towards investments elsewhere, the US in particular. “Basically any time there is uncertainty investment flows away from it,” Edward says.
One example would be S.F.-based Wells Fargo’s purchase of a new London-based HQ in the epicenter of London’s finance district.
Experts project the acquisition took advantage of Brexit’s effect on the UK’s plummeting pound, though Wells Fargo did not confirm whether that played a role in the decision.
The bank bought the 227k SF office from HB Reavis in Slovak for $395.6M. The building is under construction and will be complete fall 2017. Wells Fargo’s 850 London-based employees, currently spread out in four offices, will consolidate into the one in 2018.
The UK’s CRE sector has been struggling since the referendum vote and many major asset managers have ceased trading on their funds due to investor panic.
The process to separate from the EU is a long one, and could result in many challenges for Great Britain—not the least of which is the exit’s effect on cross-country traveling and the open access UK travelers have to other parts of Europe and vice versa.
“It’s very clear that when they separate the free movement of the people will stop,” Rajeev says. “Right now if you’re an EU person you can come visa-free into the UK and come and work or do anything, but once they separate that will stop.”
Overall, economists project the outlook of the Brexit vote is twofold. In the US, it will positively affect the economy and boost foreign investments in real estate, steering more investors to the US’s stable economy.
“The global economy is clearly having issues,” Beacon’s Christopher says. “I would argue that the US is doing remarkably well for now, and I think the ongoing growth of the economy is symptomatic of the economy’s strength, not its weakness.”
Still, Great Britain’s marketplace and investors will remain uncertain about the health of its economy until the separation is complete. Until then, Edward says, investors will continue to veer away from the UK markets.
“The quicker there is clarity in terms of the separation and the laws that are going to come into play as a result (the better)," Edward tells us. "As long as we continue to see inaction we’re going to see a freeze or a movement of investment away from the area of inaction.”