Stephanie Flanders: Brexit fears are exaggerated

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The costs and benefits of the UK leaving the European Union are exaggerated, says JP Morgan chief market strategist Stephanie Flanders.

In an interview with Money Marketing, Flanders claims that apart from a weaker sterling, short-term worries about the economy and other asset classes are overrated.

Flanders says: “Long-term, I suspect the costs and the benefits of leaving are exaggerated. We are still a successful economy and we’d still have a strong trading relationship with Europe, we’d still have attraction to foreign investors.”

On Monday, after news of the EU referendum date was announced, the pound hit a seven-year low against the dollar, falling by 2.4 per cent at its lowest to hit $1.4059.

Although Flanders says the sterling will take the major impact of a Brexit, a bigger concern in the short term would be around the ability of individual companies to adapt to “the new system”, especially small caps.

She says: “I am less concerned about big market moves [in the event of Brexit] and the sterling than I am about in the individual companies that we are invested in. We especially worry on how skilled we think they are in navigating that new environment.

“But companies you have confidence in would probably have good prospects in whatever scenario.”

Flanders says: “The big impact in the short-term would be uncertainties for companies, but this will be a micro uncertainty rather than a macro one because there is no rule that would change overnight. Nothing would happen for two years but every major company would have to think what the cost structure is going to be like, as well as the supply relationships with this new arrangements.

“They don’t know what the new arrangement is and that would take a long time to be negotiated.”

Flanders says the transition to new models following a Brexit could be “very difficult” for companies, although she believes those with good leadership and management structures will be able to navigate the changes.

She says: “Companies we invest in have now a question mark in their minds about their long-term investment plans and they are certainly aware that they would have to have systems in place to look at their business models if a Brexit happens, but the majority of people are still expecting that we’ll stay in.

“A lot of the big companies are the ones that are most favourable of staying in the EU and the smaller companies feel less strongly about it because they benefit from a single market.”