One of the leading money managers in the City of London has said the fallout from Britain’s vote to leave the EU will be “horrible” and that the Square Mile is still “slightly stunned” by the result.
Richard Buxton, the chief executive and head of UK equities at Old Mutual Global Investors (OMGI), which manages £26bn of funds on behalf of individual investors and institutions, said warnings from the pro-EU campaign about the impact of Brexit before the referendum were well placed.
“I don’t think there was doom-mongering, because it is absolutely going to be horrible,” he said. “Mark Carney’s speech [in which he warned of dangers of Brexit] was absolutely spot on. This is just really bad news.
“You can criticise the Brexit team for a) an utterly mendacious campaign and b) not expecting that they would really win, so never having a plan. I mean the whole thing is literally unbelievable. It is extraordinary how we have ended up where we are.”
Buxton has worked in investments for 31 years and is regarded as the City’s leading stock picker, alongside his rival Neil Woodford. Funds worth more than £1bn left Schroders and went into Old Mutual when Buxton moved between the two companies in 2013.
“Unlike an election result, where ‘OK, it’s not great, but in five years’ time it can be reversed’, this is stupendously final,” he said. “I don’t always agree with Martin Wolf [the Financial Times columnist], but when he wrote the day after that this is probably the single worst event in British postwar history, yeah, I don’t disagree.
“In terms of the markets, you have seen this massive polarisation, literally 60-70% share price differential within days, between British American Tobacco [which went up due to the weakness of sterling against the dollar] and a housebuilder [that went down]. That is without precedent.”
Buxton said workers in the City and at OMGI were still coming to terms with the vote. “I think people are still slightly stunned,” he said. “Coming to terms with this is that classic cycle that you go through in terms of shock, grief, anger, all of that. We are very early into this.
“Our mood here is we’re ‘glass half full’ people. We have pulled together. A lot of people have come in without being called; they were in early from that Friday [24 June] onwards. People have come together when they have needed to in terms of queries from regulators on liquidity and flows, and so on.”
The threat of redemptions – investors withdrawing their money from funds – is serious in the city. Several property funds blocked investors from taking out their money amid panic that the uncertainty caused by the referendum result could cause property prices to fall.
Buxton admitted that OMGI had seen “modest outflows”, but said a major overseas client had pumped more money into its funds because it believed that the fall in the value of sterling and tumbling share price provided a buying opportunity.
“We are OK, but clearly we have got to accept that over the next six months we will have to work with our clients. At the moment, we are even struggling to get appointments with people because they are just head down, in the bunker, don’t want to know, don’t want to talk anyone and don’t want to think about doing anything. That will fade over time, but it’s how can we get out to people and say ‘look, we do still think there are some amazing investment opportunities here’.”
Buxton said the stock market had already priced in a “pretty significant recession” for the UK, with falls in the value of housebuilders, commercial property companies and financial institutions.
“Now I think the economy is going to judder to a halt [or] have a mild recession, but I don’t think it is going to be as severe as some of these shares are pricing in,” he said. “That said, there is no mad rush to add to or buy into some of those stocks, because the real economy is only going to gradually emerge over the next three to six months.”
The OMGI chief executive also warned of continued volatility in trading for the near term, because of the uncertainty surrounding the deal that Britain would negotiate with the EU.
With Theresa May in place as prime minister and Philip Hammond as chancellor, the City is focusing on what policies the new government might pursue. Hammond, Buxton said, had “walked into one of the most unusual economic environments I have known in my 30-year investment career”.
“I am pretty sure that the government will, in the autumn statement, do some fiscal weakening, such as reducing stamp duty on housing transactions, cutting petrol taxes to offset the increase that will come from the weaker currency,” Buxton said.
“The bigger question is: are they bolder? Do they go ‘right, well we are in a different world; if we can borrow at a ludicrously low rates through extensive debt issuance, then let’s do so, specifically to invest either directly or alongside private investors in infrastructure projects’.
“We could resurface [the] M1 [motorway], we have a clear need for more gas-fired electricity generational plants. The private sector is not stepping up and doing any of this, unsurprisingly, so lets do some funding, some guarantees, make things attractive.
“It will be interesting whether they do that. But clearly, even just the former measures, let alone the latter, mean the budget deficit is going to be swinging out again. Now, that, to my way of thinking, is why sterling is weak and could weaken further, to be honest. Already it [the deficit] wasn’t coming in quick enough, but it is going to start expanding.”
As for the response of his company, Buxton said OMGI would open a new office in Dublin if it needed to, but predicted that there was unlikely to be any “clarity” for two years as the UK negotiated to leave the EU.
“For now, the UK is still a member of Europe [the EU] and we can still do everything that we were doing,” he said.
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