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Fund manager tips two markets ‘most exposed’ to Brexit

The historic Brexit referendum last week saw Britain vote to leave the EU – but what does it mean for these two major real estate markets where foreign investor activity is concentrated?

Brexit sparked global market volatility, sending the British pound plummeting to its lowest point against the US dollar since 1985. The ASX fell by almost 4 per cent the day the result came in. The market reaction was extreme. However, the question now is when balance will be restored and what lasting impacts the fallout could have on the Australian economy.

T. Rowe Price portfolio manager for European equities Dean Tenerelli predicted a protracted period of uncertainty – not only in UK and European financial markets, but globally.

"Markets do not like uncertainty," Mr Tenerelli said.

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According to Professionals Real Estate Group CEO Shane Kempton, property investors are the most influenced by negative global sentiment.

"The most exposed sector to any international negative repercussions will be the apartment market where investors own 57.8 per cent of units in Victoria and 49.6 per cent of units in NSW," Mr Kempton said.

"Property investment activity has been very strong in areas such as Victoria and NSW over the past three years and this has resulted in surging property prices in Melbourne and Sydney.

"Many of these investors in Sydney and Melbourne have been from overseas."

In contrast, investors only own 29.6 per cent of units in Western Australia, according to Mr Kempton.

"In Perth, very few international property investors have been active in recent years.

"Indeed, a silver lining of the global uncertainty is that the Western Australian property market may benefit from investor uncertainty in the eastern states who may now decide it is a good time to invest in WA."

Meanwhile, AMP Capital’s Shane Oliver said the Leave victory is unlikely to plunge the UK or Europe into an immediate recession, and the main impact in Australia will be on financial markets.

"This could affect short-term confidence and may add to the case for the RBA to cut interest rates again, particularly if banks increase their mortgage rates out of cycle due to higher funding costs flowing from an increase in lender caution," Mr Oliver said.

"That said, we expect the RBA to cut rates again anyway."

ANZ’s Australian Markets Weekly report reflected a similar sentiment.

"Our initial expectation is that the Reserve Bank will be in wait-and-see mode to judge the extent of the volatility, but increased uncertainty will place pressure on the bank to cut rates if it spills over to consumer and business confidence," ANZ said.

Fund manager tips two markets ‘most exposed’ to Brexit
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