Blackrock has said that they believe that financial markets, particularly equities, may be under-pricing the risk of Britain leaving the European Union. With the vote on Britain’s EU membership less than two weeks away markets appear to be treating the possibility of Brexit as a local event rather than a globally systemic risk according to the world’s largest asset manager.
If we focus on stock indices then it’s easy to see their point, the S&P500 (US500) is near a record high and even Britain’s FTSE (UK100) is outperforming its European and Japanese peers this year. In the event of a British vote to stay in the EU the co-lead manager for global bond strategies at Blackrock states that this could lead to a recalibration of the country’s interest rate outlook, with rates and yields likely to move up to be more in line with their US equivalents.
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