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A 21 standard deviation wake-up call

Weekly investor research

27 June 2016

The Brexit shock was a 21 standard deviation event in GBPUSD. It is time to ditch the fiction of risk-free developed markets. EM asset prices behaved well in response to the Brexit shock and offer potentially better risk-return characteristics. We believe that investors should accept the facts and reduce their remaining exposure to developed markets. In Colombia, the government and FARC rebels agree to stop fighting each other. China is gradually and deliberately allowing more corporates to go to the wall, but default rates remain very low. Brazil’s acting president strikes an important deal with States that increases the odds of meaningful fiscal reform and in Venezuela relations with the US thaw.

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