In a recent interview on “Bloomberg Markets: European Close,” Tom Clarke, portfolio manager on William Blair’s Dynamic Allocation Strategies team reacts to Brexit Secretary Dominic Raab’s warnings of higher prices and more red tape in the event of a “no deal” withdrawal from the European Union (EU). Additionally, Clarke shares his team’s strategy in taking advantage of the recent volatility of the Turkish lira.
“This late in the game, all options are still on the table from “no deal” to “no Brexit” and everything between,” says Clarke. “As we get closer to the March 2019 deadline, there has been and will continue to be more and more chatter.”
Clarke told Bloomberg, the pound and U.K. equity markets have not been volatile in the last couple of years and did relatively well in 2017, which is most likely attributed to the fact that there has been little progress on Brexit and in reaching any policy decisions on leaving the EU.
“The soft Brexit is the more market friendly, hard Brexit or no deal is the more market unfriendly,” says Clarke. “Most of the incentives point toward the outcome being relatively soft, but as we get closer to the deadline it becomes a more risky proposition to make investment decisions on that basis.”
When asked whether Britain making unilateral trade deals could cover the potential loss of output from the Brexit decision, Clarke says, “I don’t think it would pay for it. I think that leaving the EU is an unquestionable economic hit—the question is how much of one rather than will there be one or not.”
In another interview, Clarke responds to the recent volatility of the Turkish lira, explaining that this kind of episode can happen every couple of years, especially in emerging currencies. There is often some spillover to other emerging currencies as investors question who will be next and what other currencies will be affected.
At the same time, the lira is currently extremely undervalued, which creates an attractive opportunity, says Clarke. “These kinds of moves come around rarely and do offer very significant opportunity.”