27th Jun 2016 16:31
LONDON (Alliance News) - Toro Ltd said Monday that its portfolio manager's ability to assess the impact of the UK's vote to leave the European Union is "limited" until a trajectory is agreed, or at least proposed by the incoming Prime Minister.
It said, however, that Brexit is likely to harm the UK economy first as both investments and consumption wane. A mild recession could be accompanied by falling real estate prices, increasing arrears and default rates affecting UK consumer asset-backed securities transactions.
Toro said its exposure to UK assets were reduced significantly in the first quarter of 2016.
The European economy is also expected to be hit, and Toro said its portfolio manager expects to managed actively tail risk hedges.
"The increase degree of risk aversion in the market is also likely to last, as uncertainty from a Brexit should remain in place for an extended period of time given the complexity and duration of the process. A calm and opportunistic approach to investment, made possible by Toro's capital structure, should create better entry points both on liquid and illiquid assets as markets adjust to the new reality," Toro said.
In terms of an initial impact, Toro said the European asset-backed securities market was "rather calm and orderly". It would expect its exposure to public asset-backed securities to be marked down by 3%. Its net asset value is expected to be marginally down month to date, but it said its large cash position, low leverage ration and hedging policy are mitigating factors "likely to offset the mark-to-market losses."
Shares in Toro closed up 3.3% at EUR0.785.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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