Market pros believe Brexit will happen, and it's not that bad for US stocks

Top investment strategists believe Brexit will take place, despite speculation of reversing the vote results, and that the U.K.'s separation from the EU won't be disruptive.

Although Britons voted to leave the EU last Thursday, the official separation can't occur until a never-used Article 50 is triggered.

There "will be Brexit," said Mike Ryan, chief investment strategist at UBS Wealth Management Americas. He was speaking with four other market pros on a macroeconomic panel Thursday at the UBS CIO Global Forum.

Meanwhile, an informal survey of forum attendees showed about half expect the U.S. to see the best equity return at the end of the year, and almost 40 percent said emerging markets. That compared with a majority in favor of euro zone equities at the forum last year.

A pedestrian passes in front of the New York Stock Exchange.
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A pedestrian passes in front of the New York Stock Exchange.

The S&P 500 is up more than 2 percent for the year so far, while the German DAX is off nearly 10 percent and the iShares MSCI Emerging Markets ETF is up more than 6 percent year to date.

"What investors need to keep in mind is this is not a Lehman situation at all," Kristina Hooper, U.S. investment strategist at Allianz Global Investors, said at the forum. A drawn-out process for the British exit of the EU is a long one with potential for "thoughtful" negotiations.

U.S. stocks have rallied in the last three days, recovering about three-quarters of their losses from the post-Brexit plunge. Part of those recent gains were supported by market chatter that, in the end, Britain would not actually leave the European Union.

But Brexit, the first actual departure from an EU member, was the talk at this forum one week from date of the referendum.

"I don't think it's going to be reversed," said Dawn Fitzpatrick, global head of equities, multiasset and O'Connor at UBS Asset Management.

She said London-centric financial press hyped "ReBrexit" Wednesday, but that outcome was unlikely.

London and Scotland voted overwhelmingly for remain, which won 48.1 percent. Leave was narrowly larger at 51.9 percent, but that was across a near-record 72.2 percent voter turnout.

The high participation rate means the debate swirling around who will succeed David Cameron as the next UK prime minister probably won't reverse Brexit, several of the panelists said.

"Whoever gets that job is going to [have] a thankless job. I don't think any British leader will make that decision without consulting the people," said David Kelly, chief global strategist at JPMorgan Asset Management.

He expects leaders to most likely go through with Brexit without encouraging other EU members to leave. It's a "cautionary tale with the rest of Europe," he said. "Very fraught."

British interior minister Theresa May, the bookmakers' favorite to become the next prime minister, said Thursday in a Reuters report there was no going back on Brexit, but divorce talks would not start until the end of the year.

German Chancellor Angela Merkel has struck to a tough tone in her comments about the negotiations.

"Whoever wants to leave this family can't expect to do away with all of its responsibilities while keeping the privileges," she said in a Reuters report Tuesday.

The fifth member of the UBS panel was Rich Clarida, global strategic advisor at Pimco. He also agreed that Brexit was not likely reversible.