Brexit reaction: outlook for property equities

24/06/2016

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Guy Barnard, Manager of the Henderson Pan European Property Equities Strategy and Co-Head of Global Property Equities, responds to the UK’s decision to leave the European Union (EU).

The full implications of today’s decision by the UK to leave the EU will take many months, if not years, to become clear. However, the short-term economic impact is undoubtedly negative given the uncertainty surrounding the UK’s trade renegotiations along with the knock-on impact to the rest of the EU, where political tensions will undoubtedly increase. All of this will undermine investor confidence and delay business and investment decisions.

For real estate markets, the impact is twofold. Firstly, what will this do to investor demand? Short-term, given heightened uncertainty, demand is likely to drop significantly as prices adjust downwards and find a new level, along with other asset classes. While potentially substantial, we do not expect price falls to be as significant in the UK as they were during the financial crisis, given leverage in the sector is far lower today and we have a stronger banking system. We may also see some support from central bank easing and ever-low bond yields. Additionally, weaker Sterling may attract international investors, as it did after the financial crisis. Secondly, what will happen to tenant demand? Rental growth is highly correlated with economic growth, so we would expect to see weaker demand caused by economic uncertainty putting pressure on rents. The London office market will be most exposed given demand from financial and multinational occupiers will weaken as they decide how this will affect their businesses going forward.

All of this will take time to feed through to property markets and pricing, but the stock market and the listed real estate securities we hold will look to price this in immediately, leading to significant declines in share prices. We can take some comfort from the fact that the companies we hold have long-dated income streams and balance sheets that can absorb material price declines.

Today is unlikely to be a day to make significant portfolio moves. Market volatility will likely create some opportunities, but initial reactions tend to be extreme.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.


Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Global Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

Janus Henderson Horizon Pan European Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

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Brexit: investment impact

Henderson's investment teams have been providing their views in the months leading up to the referendum. They now provide 'Brexit reactions' outlining how they believe the vote to 'leave' will impact their asset classes and portfolios.





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