The Underappreciated Story: How Brexit Threatens to Shift the Balance of Power in the EU

For fixed income investors eyeing opportunities in Europe, 2018 should be the year economic fundamentals reassert their worth, according to David Zahn, Franklin Templeton’s head of European Fixed Income. Nonetheless, Zahn believes many investors are underappreciating the long-term implications for Europe of the biggest political uncertainty for the region—Brexit.

Here are some highlights of Zahn’s thoughts in our latest “Talking Markets” podcast:

  • There may be some noise around politics in Europe, but overall I think politics will take a backseat and people will be more focused on what’s happening with the European Central Bank and the macro economy.
  • I think one of the important points people haven’t been focused on regarding Brexit is what happens to the voting situation within the EU Parliament once the UK leaves, as the UK has 12% of the votes. People will realize it does change how the EU functions.
  • I think that you will have this whole argument over when quantitative easing in Europe is coming to an end and what the impacts will be. That means rates will probably be quite volatile this year.
  • In the run up to the Italian election in March, we will probably see a lot of noise from the different parties talking about their policies. Five Star is the one people will be most focused on, because they are the ones that are saying, “we don’t want to be in the eurozone.”

The full transcript of the podcast follows.

Host/Richard Banks: Hello and welcome to Talking Markets with Franklin Templeton Investments: exclusive and unique insights from Franklin Templeton. I’m your host, Richard Banks.

On this episode I’m joined by David Zahn, Franklin Templeton’s head of European Fixed Income, to talk about what 2018 has in store for the region.

Host/Richard Banks: David, it’s good to have you back on Talking Markets.

David Zahn: Great to be here.