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A view on the EU Referendum

Kalim Aziz
July 20, 2016

Instead of updating on the ‘news of the day/week/month’ and or commenting on how/why and what of the outcome of the Brexit vote, we want to focus on three aspects: 1) how it affects UK and what we believe might happen, 2) what is the likely ‘response’ of EU to this event with respect to EU rather than UK, and, 3) Atmosphere.

Whatever said and done, the UK has to re-think 1) how it deals with the needs and demands of its population, 2) how it wants to relate to the EU, and, 3) how it wants to re-position itself with the rest of the World.

There is no scenario in which we see the UK not suffering in the immediacy of the Brexit vote, socially and economically. Irrespective of news/noise that emanates from various sources (politicians, experts, newspapers), the EU will have to wait for the UK to trigger article 50 before any serious negotiation could take place. Brexit vote must have raised questions to the powers that be and the founding members which they need to address re the EU project, either in the form of more and/or rapid further integration or two/three tier evolution of memberships (different club status) where ‘application’ and ‘benefit’ of EU law and membership is ‘tiered’. It is also clear to us that a need to ‘incentivise’ more EU might lead to some sort of ‘Marshall Plan’/’counter-cyclical fiscal stimulus’ or ‘support’.

In relative terms, the EU will come out of this Brexit call stronger than before, perhaps better-off without UK being one of the members being a deterrent to further integration.

The debate about ‘UK’ – ‘EU’ negotiating the exit, conditions, terms etc. that we are likely to hear on the wires and what actually happens are likely to be completely different: both sides have different ‘communication’ agendas. UK wants to communicate that the Brexit vote put the country in a difficult situation, but that it has been able to negotiate a deal with the EU which is the beneficial for the country and is in line with the will of the people. EU wants to communicate to the remaining members that it is a fair party to deal with, however, there are significant privileges of being a member which significantly outweigh nationalistic interests. In reality, the negotiation will be drafted by technocrats looking at what is the ‘least’ damaging for both parties and we will get to see the version that shows us in the best light.

All said and done, this will lead to more and stronger Europe.

Kalim Aziz
Kalim Aziz
Senior Analyst at Duet Asset Management LLP, London
Mr. Kalim Aziz spent more than 20 years analysing companies in the global emerging markets. Kalim served as a Head of EMEA Research managing over 30 analysts at ING Groep in London and later headed Equity Research of the EMEA Region at UniCredit Banca Mobiliare in London together with Centralny Dom Maklerski Pekao in Warsaw and Koc Yatirim in Turkey, altogether covering more than 100 companies in the region. In 2006, he moved to the buyside as a Co-fund Manager of Kairos Eurasian Fund with Guido Brera. Kalim now helps managing equity fund at Duet Asset Management in London. Besides, he owns a consultuancy company Kiradvisory Limited, an affiliate of Helgi Library on various analytical work.