Brexit and you

As you would now be aware, and contrary to what the Bookies were indicating in the lead up to the “Brexit” vote, the votes are all in and the UK has elected to leave the European Union (EU) with a vote of 51.9% to 48.1%.

As a consequence of this decision:

• Article 50 of the EU constitution, the law governing the process of the UK’s divorce from the EU, will be triggered at some point;
• This will start the two-year process to determine the terms of the UK’s EU exit, including its access to the single market;
• Prime Minister David Cameron has resigned; and
• The result is likely to hamper the UK economy to some extent.

Immediate impacts of the vote on Friday:

• British Pound down - 31 year low;
• US$ up;
• Gold up;
• A$ down;
• Commodities down;
• Equities down;
• UK facing Australian stocks hit the hardest – Henderson Group (HGG), BT Investment Management (BTT), IRESS (IRE), Clydesdale & Yorkshire Bank (CYB);
• Increased volatility;
• German bond yields plunge back into negative territory, hitting a new all time low. 

What we could expect:

• Flight to safety - good for Gold, US Bonds, US$;
• Australian interest rates still likely to fall but a lower A$ could mean less need for a rate cut;
• Downgrade to European and therefore global economic growth forecasts;
• Bad for Asian markets exporting to Europe;
• Lower British Pound & Lower Euro;
• Higher market volatility;
• Risk off - not good for cyclical currencies like A$;
• Falling commodity prices on the back of weaker/uncertain economic growth in Europe and the impact of a higher US$;
• Political uncertainty and instability in the UK then Europe - not good for markets;
• Two years of negotiations with the EU on how to exit will inject long term uncertainty;
• Other countries may look to exit the EU;
• US less likely to raise rates in the short term 

In times such as these, where equity markets experience heightened, event related volatility, it can be helpful to keep in mind that volatility is a normal part of long term investing; avoid being swayed by market sentiment. Over time, long term investors are usually rewarded for taking equity risks and in times of heightened volatility, where market corrections are occurring, attractive investment opportunities can present themselves.

As always, if you would like to discuss any of the above please do not hesitate to contact our Investment Advice Team.