Legg Mason : A Flexible and Pragmatic Approach is Key says Martin Currie

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Europe and Brexit: A flexible and pragmatic approach is key says Martin Currie

Will Brexit be a seismic event or just be a bump in the road? Regardless, Martin Currie looks through market noise to potentially capture returns

Edinburgh, Scotland- 6 June 2016 - Europe's political and economic make-up could be altered if the UK votes to leave the European Union (EU). If they vote to exit, the EU would lose its second largest economy and the resulting lack of clarity over new trade agreements and foreign direct investment (FDI) could see a prolonged period of uncertainty. Portfolio Managers of Martin Currie's European Long/Short team, Michael Browne and Steve Frost, examine the potential implications of a "Brexit" for European investors in their latest whitepaper.

The majority of polls have suggested that the UK will opt to 'remain' in the EU, but the result is too close to call. It seems probable that staying will be a non-event for the markets and equally probable that withdrawing will lead to a period of instability.

"What is clear is that all scenarios facing Europe after the vote will involve a degree of uncertainty over the future," noted Mr. Browne. "Specifically, we've identified four potential scenarios from an investment point of view which could present cause for the repositioning of our strategy. What is key to remember, regardless of the outcome, is it's important to be flexible and pragmatic."

Messy Divorce: The worst-case scenario, where the UK strikes no trade accords with the EU, or a lengthy period of negotiations which could result in a full recession in the UK, with negative FDI. Contagion: There is concern that if the UK leaves the EU, other member countries could follow suit resulting in a fractured Europe. Amicable Separation: In an effort to avoid a European-wide recession, it's reasonable to expect EU leaders will not impose overly punitive restrictions on the UK however uncertainty would still remain. Neverendum: While a clear vote to remain would most likely mean no change, a narrow result could mean continued campaigning from the opposition further down the line.

Similarly, a slim majority for a 'leave' vote could mean a future campaign for the UK to rejoin.

"In the more negative scenarios, we would aim to manage capital by reducing the balance sheet and increasing our short exposure. Against a more positive market response, we would extend the balance sheet into a rising market," explained Mr. Frost. "We believe, due to our pan- European strategy, we have the flexibility to focus on the countries and companies which are either less exposed to the impact of Brexit, or may benefit from it."

The objective of Martin Currie's European Long/Short team remains to efficiently capture uncorrelated equity returns with managed volatility and downside risk management. In this sense, the firm will aim to look through the current short-term market noise and potentially benefit from the opportunities, whatever UK voters decide.

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About Michael Browne

An Investment Director and is a member of the European long/short team based in London, Michael Browne joined Martin Currie in 2010. Previously he co-managed the European hedge fund of Sofaer Capital, from 2001; was head of international equities at Chase Asset Management, where he had overall responsibility for all non-U.S. equity portfolios; and began his career in 1986 at BZW Investment Management, where he was responsible for a variety of European unit trusts and segregated funds. Mr. Browne received a degree in economic history from Brighton College, Durham University in 1981.

About Steve Frost

Steve joined Martin Currie in 2010 and is a member of the European equity long/short team. He came to us from Sofaer Capital, where he had managed the European Hedge Fund with Michael Browne since 2001. Before joining Sofaer, Steve was the lead manager of Chase Asset Management's European Equity Hedge Fund. At Chase, he also managed European portfolios for a number of long-only funds. Steve began his career in BZW Investment Management's European equity team, where he managed a variety of mutual and pension funds. He has a BSc degree in management science from the University of Warwick Business School. Steve passed the general registered representative exam, holds the Securities Institute's diploma (SIE Dip) and passed the National Commodity Futures examination.

About Martin Currie

Martin Currie is an active equity specialist, driven by investment expertise and focused on managing money for a wide range of global clients. Its approach to investing is simple: it focuses on companies. The integrated investment floor seeks out those companies it believes have the fundamentals to deliver material outperformance on a medium to long-term basis. Once identified, these ideas are molded into well-balanced portfolios. The firm's approach to portfolio construction reduces and controls macro-factor sensitivity, aiming for client portfolios to derive maximum value from stock insights and for returns to be delivered in a predictable and sustainable fashion.

Martin Currie is an independent investment affiliate of Legg Mason, a global asset management firm with over US$707.1 billion in assets under management as of 30 April 2016. Legg Mason provides active asset management in many major investment centers throughout the world. The firm is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

About Legg Mason

Legg Mason is a global asset management firm with $707 billion in assets under management as of April 30, 2016. The company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

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