Brexit Stock Drop Not Over for Norway Manager of $10 Billion

  • Betting on improvement in oil company credit after rebound
  • Policy makers need to move quickly to stem uncertainty

Worse is to come for equity markets after the U.K.’s vote to exit the European Union, according to the tactical asset allocation unit of Norway’s largest listed life insurer, Storebrand ASA.

“It’s still too early with so much uncertainty,” Olav Chen, who oversees 80 billion kroner ($10 billion) at Storebrand Asset Management, said in an interview last week. “I don’t think we’ve seen the bottom of the correction yet.”

Global stock markets were whipsawed after British voters shocked the world by voting to leave the EU. The Euro Stoxx 50 Index plunged 11 percent over the two days following the referendum but has since recovered 6.6 percent. The MSCI World Index has regained most of its 7.1 percent decline.

Chen said he considered buying stocks after the Brexit vote but instead decided to more or less keep the unit’s positions and risk exposure. His unit sold some stocks on Friday, he said in an e-mail on Sunday.

“There are more questions than answers regarding Brexit,” he said. “It can take several years.”

Chen’s unit reduced equities to normal weight in its tactical mandates in April and May for the first time since 2013. It cut back to an normal weight in European stocks and increased exposure to emerging markets, he said.

“We also went overweight in credit versus government because of Norwegian credit and the oil price rebound,” he said. “We’re betting a bit on a recovery for oil company credit.”

Move Quickly

While the stock market correction may not be over, Chen doesn’t see other countries following the U.K. out of the EU. Policy makers have more experience after handling the financial crisis and the EU debt crisis. But they’ll need to move quickly to reduce uncertainty, he said.

“Get things done -- good or bad,” Chen said. “The more you create uncertainty in the market it becomes self-fulfilling. Companies and households will be more cautious causing a negative spiral, weakening demand. Uncertainty is the most important factor affecting sentiment.”

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