Global markets lose record $3tn (trillion) since Brexit vote?

Brutal selling in past two trading days comes on rise in volatility and flight to safety

Source: FT

by: Nicole Bullock in New York

June 27, 2016

Global stock markets have lost a record $3tn in the past two trading days after a sharp sell-off in equities around the world in response to the UK referendum vote to leave the EU.

Observers said the falls on the first day after the vote on Friday were tied mainly to the short-term unwinding of trading positions related to expectations of a Remain vote ahead of the shock result. The further selling on Monday was more about long-term revaluing of assets in anticipation of the potential fallout from the decision.

“The bottom line is that very few investors were positioned for the vote we got,” said Nicholas Colas, chief markets strategist at Convergex.

On a percentage basis, the S&P Global Broad Market index, known as the BMI, has fallen almost 6.9 per cent, the worst two-day decline since the aftermath of the financial crisis in November of 2008 and 12th worst on record, according to S&P Dow Jones Indices.

The declines included a nearly $1tn loss for the S&P 500, or the third worst two-day drop ever in value terms.

The benchmark US index has lost 5.37 per cent since the close of business last Thursday, the worst two-day decline since last August when fear about an economic slowdown in China spilled over to the US and prompted a wave of selling.

“The momentous UK Brexit vote to leave the European Union has led to a spike in global financial market volatility and a flight to safety due largely to concerns about the durability of the European Union and the euro, and US stocks have suffered from the resulting ‘risk-off’ environment,” said Michael Reilly, chief investment officer for equities at TCW.

The brunt of the losses were in developed market equity markets where the value of the decline was $2.8tn, while emerging markets have lost $179bn.

Analysts and investors were reluctant to predict when the declines in value might eventually begin to lure bargain hunters.

 “Investors need to see stability in a couple of metrics: the British pound, the euro and financial stocks,” Mr Colas said.

On Monday, in addition to heavy losses in US and European equity markets, the waning appetite for risk drove sterling to a fresh three-decade low against the dollar.