Financial markets are failing to take realistic account of the future effects of this summer’s referendum vote in the UK to leave the European Union, and, as a result, there are now dangers lurking in the background for investors, conference participants in Berlin heard today.

Amin Rajan, chief executive at CREATE-Research, told the 2016 IPE Conference and Awards: “Markets are not pricing in the second, the third, the fourth-round effects of the Brexit vote, and, as a result, there are dangers lurking in the background on a slow fuse.”

He cited a 2016 pan-European survey taking in the responses of 167 pension funds, by his firm and Amundi Asset Management. 

“The first danger is really about the Brexit vote and also about the vote in the presidential election in the United States,” he said.

“What we’re really saying is that the rise of nationalism as a result, this is proving to be another headwind for investors in the years to come.”

The survey takes a three-year view, and Rajan said it was very difficult to see anything further out than that.

“That means Brexit is really a canary in the coal mine, which is presaging the fragmentation of Europe,” he said.

The process of Brexit is another risk facing investors that Rajan said would be as provocative and as dangerous as the actual outcome of the divorce, as it was as yet unknown what the process was likely to be.

“This could be a long, protracted divorce, and we don’t know how it will end, and when it will end,” Rajan said.

“[US president-elect] Donald Trump has promised to tear up every major security and trade deal America has signed since World War II – it’s a frightening prospect.”

Rajan said a question being asked now was whether Trump would honour what he promised on the campaign trail, or sober down and behave in a more responsible way.

“At this point in time, it’s very difficult to know,” he said.

Rajan noted that financial markets, which had dipped every time Hillary Clinton’s ranking fell in opinion polls during the run-up to the election, surged two weeks after the election, apparently giving Trump a “standing ovation”.

“Markets seem to believe in everything, and, in my view, they are not really thinking properly,” he said.

Populism has added yet another layer of uncertainty for pension investors, he said.