The yen and the prices on US Treasuries bounced simultaneously on the new low of the British pound, which had not been remembered for 30 years. But it is the bursting of the real estate bubble that is most worrying international analysts due to the inevitable repercussions on the fund companies involved. If the indicators on retail sales and job uncertainty in just two weeks have already shown a clear and anomalous worsening, as published by the Financial Times, it was the suspension of the real estate funds of Aviva, Standard Life Investments and M&G Investments that triggered the panic .
Only in the period of the Lehman crisis was it necessary to resort to such a drastic measure linked to an intensification of requests for disinvestment in the face of a real estate market in evident crisis. Already last week there was talk of a 10% drop in prices linked to the weakening of the British currency but now the situation becomes complicated with buyers on the defensive and certain that rock bottom has not yet been reached. Added to this is a puzzling political vacuum from Cameron's resignation, to the ex-Mayor of London's opportunist attitude and up to the voluntary "early retirement" at EU expense of Brexit advocate Farage!!
Now 7% of total UK commercial property investments are linked to these funds totaling £35bn and already in May they had outflows of £360mln. Being funds based on real assets that cannot be sold as if they were shares, the suspension was necessary to allow managers to sell these properties, and the risk of sell-offs to meet redemptions is evident. This would trigger a downward spiral, which would also involve residential properties, which would get worse
the economic framework of the former United Kingdom further, as highlighted in the periodic report of the Central Bank just a few days ago.
The domino effect then on the collateral linked to mortgages as well as for leveraged investors, who are always present on the Anglo-Saxon real estate sector, would be unavoidable and onerous at a systemic level for the banks and financial institutions connected to them. The central bank's stress tests had simulated a 30% decline in property prices as a worst-case scenario and it said it was ready to include a larger price shock in an upcoming stress test for banks.
In this "consultative" post-referendum vacuum, Governor Carney spoke very clearly about a forthcoming rate cut and containment measures to avoid a clear risk of recession. With limited international reserves, and lower than those of Italy and France in relation to GDP, even the announcements of measures to support the economy fall into a political vacuum which will most likely not be filled until October. The absence of a Prime Minister in the face of structural problems to be addressed with a certain urgency are fueling a not indifferent social and generational clash with inevitable repercussions on the EU. In fact, the paradox of the Community treaties does not impose and does not oblige defined resolution times and on this uncertainty the British have gone from being the protagonists of a challenging and mutually satisfactory agreement signed in February by Cameron, with the strengthening of the "Special status", to a ballast for the EU.
