Voters in Britain chose to leave the European Union in a referendum held on June 24

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It comes as no surprise that the past couple of months have seen the crystallisation of an already existing trend, among Asian investors, towards deploying the services of wealth managers and private banks. Many of these investors have, after all, been dealing with the financial fallout from the UK’s June 23 vote in favour of leaving the European Union.

According to a study released in July by Singapore-based East & Partners, a quarter of high-net-worth (HNW) investors in Asia were clients of private banks as of May, up from 10 per cent three years ago, while the proportion of those managing their own wealth dropped from 70 per cent to 52 per cent in the same period. The firm predicts that in the next year that figure will further drop to 47 per cent, with private bank clients making up 30 per cent of all HNW Asians.

As Angelo Dilibero, the Hong Kong-based director of financial services at Alliance Group International, puts it: “We generally see a spike in activity from clients seeking professional advice during global events such as Brexit that bring an unusual amount of volatility into the market. The unique consideration with Brexit is that there are many more twists and turns in the story left to unfold.”

The financial markets’ initial reaction to the outcome of Britain’s referendum was one of shock. In the days before the vote, bookmakers’ odds had suggested the chances of a victory for the Leave campaign were less than one in four, prompting many to wager on riskier assets. In the event, June 24 saw the highest-ever single-day erosion in market capitalisation, with more than US$2.5 trillion being wiped off equities around the world, including US$582 billion in Asia. The pound crashed to 31-year lows against the dollar, and the FTSE followed suit, losing 200 points.

The panic was made worse by the fact that Britain suddenly found itself politically rudderless after David Cameron’s decision, having lost the vote, to resign as prime minister. Following a fierce round of bloodletting in the country’s ruling Conservative Party, that situation was hastily resolved with the effective coronation of Teresa May as Britain’s new leader on July 13, but the financial backwash continued to ripple forth.

British prime minister David Cameron resigned in the wake of the unexpected referendum result

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Through July, UK investment funds suffered their worst redemptions in at least three years as investors pulled almost £5 billion from asset managers. According to the data provider Morningstar, property funds suffered outflows of £438 million, a figure that would have likely been far higher had not seven of the biggest asset managers, including Standard Life and Henderson Global Investors, suspended withdrawals from their UK commercial property funds over fears these might necessitate fire sales, nudging real estate values into a downward spiral.

At least some of the money withdrawn by investors appears to have found its way into UK-domiciled funds specialising in less risky assets—including corporate and government bonds, and also fixed income funds, which saw inflows of £759 million in July. Much of it, though, was reallocated elsewhere. According to John Woods, chief investment officer for Asia-Pacific at Credit Suisse Private Banking, Asian investors have been very much a part of the flight from volatility. “Initially, Brexit triggered risk aversion among Asian investors and any rebound was largely triggered by reallocating into higher yielding emerging markets,” he says. “Overall, we would observe that our clients have been on average net sellers of equities and net buyers of bonds. They are reluctant to gain more exposure to risky assets either in the UK or mainland Europe.”

For its part, the British government has been buoyed by some encouraging economic figures. The UK labour market has shown resilience. Jobless claims were down for July and average weekly earnings up. Retail sales were also up, by 1.4 per cent, and analysts revised their predictions for the UK economy this year—they now expect GDP growth of 1.6 per cent, up from the 1.5 per cent they forecast in June. In August, the governor of the Bank of England, Mark Carney, cut interest rates to a historic low of 0.25 per cent and announced plans for a huge stimulus package involving £170 billion worth of bond purchases and loans to financial institutions.

The unique consideration with Brexit is that there are many more twists and turns in the story left to unfold

Those measures might go some way towards combating any slide in business investment stemming from uncertainty surrounding the UK’s post-Brexit prospects. However, there is a widespread sense that responses so far to the referendum result—from the Bank of England and from investors—may ultimately be seen as manoeuvres in a phoney war. The real test will come as Britain attempts to recast its trade and investment relations with Europe and the rest of the world.

Asian investors have rushed to buy British property as the pound has depreciated in the wake of the vote;

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With low gilt yields, a likely economic slowdown and a large external deficit as headaches for the UK even before it triggers the process of formally leaving the EU by invoking Article 50, Woods takes a reticent view of its medium-term outlook. “The near-term effect has been much less damaging than many might have imagined,” he says. “Nevertheless, it is probably the case that investment-related activity will diminish as investors adopt a wait-and-see approach, while a weak pound may drive up inflation. Revenues within the UK also could be impacted by a potential deterioration in its macro outlook since, as we calculate, half of UK companies’ revenues are potentially affected by the commercial consequences of the Leave vote.”

Of course, the pound’s depreciation also offers potential value for Asian investors looking offshore. UBS has reported a rush from clients looking to pay off pound-based mortgages, while property giants CBRE and Colliers have both seen surging demand for prime London real estate from as far afield as South Korea and Taiwan.

“A weakened pound would make UK investments more attractive but only for the more seasoned investor,” says Alliance Group’s Dilibero. “For the more aggressive investor this is a wonderful opportunity to get into the market at a speculative time—although in Asia cautious investors tend to outnumber risk takers. Overall, the outlook and sentiment is ‘tread cautiously’ and will be for some considerable time while events unfold.”