We would like to provide our perspective on the implications of the U.K.’s vote to part ways with the European Union on June 23, 2016. The potential changes for Britain and the remaining countries in the E.U. are vast, creating great political and economic uncertainty.
Listed below are some areas that may be most affected as a result of the “Leave” vote in the coming months and years:
The outcome was unexpected and investors were caught unprepared. Markets typically don’t respond well to surprise and uncertainty, as the recent sell-off has shown.
There will be continued debate about the mechanics of how the U.K. will leave the European Union and about how the new government there will be reshaped. There are also questions about the future of the E.U., and the possibility that other countries that may follow the U.K.’s lead.
Long-term: Politics, Economics and Trade
It will be difficult to determine political, economic, and financial ramifications at this point in time but a major question will be the effect on globalization, economic growth and trade.
Things to remember:
- Policy makers will adjust. Markets and businesses will adapt. Opportunities will emerge and investors will acclimate to the changes in the market environment.
- The recent pullback in stocks and currencies of many affected countries reflects a common response to uncertainty – a flight from riskier assets. The accompanying rise in safe haven investments including U.S. Treasuries, gold, and the U.S. dollar, is also fairly typical. Diversification provides varying exposure to both riskier and safe haven investments, potentially reducing portfolio swings.
- As with other market shocks and times of uncertainty including the debt crisis, the tech boom and bust, and even the horror of 9/11, we would hope that markets eventually will stabilize and economic fundamentals will prevail. While they are difficult, these events should not have a major impact on results for long term investors.
We will further address these issues in our upcoming Quarterly Market Update. In the meantime, please let us know if you have any questions or concerns. Thank you.
Colleen Harvey, CFA