What does the Brexit result mean for you?
24 June 2016A majority of British people who voted in Thursday’s ‘Brexit’ referendum have voted for the United Kingdom to Leave the European Union. This was an unexpected result, with the polls predicting a 52-48 win for the Stay camp as recently as the day before.
Markets don't like uncertainty
There have been various claims about the long-term economic impact of Britain’s departure, but on balance we think the fundamental impact will be relatively minor. The vote doesn’t actually automatically trigger an exit, so there will be a period of time while the British negotiate with Europe on the terms of their departure.
But financial markets don’t like uncertainty. The volatility we are seeing reflects the surprise element of the vote and the fact that markets have been relatively thinly traded recently, given the upcoming vote. This is against a market that has been reasonably expensive, as we’ve indicated in our earlier reports.
Why more ‘risky’ assets are falling more
Impacts for specific markets will vary. But it’s normal for assets that are typically viewed as more linked to the outlook for global growth, to fall more, and those that are seen as safe havens to benefit. This is currently occurring with safe havens such as the US dollar, US Government bonds and gold up strongly and ‘risky’ assets such as shares and currencies, like the Australian dollar, lower.
In addition, assets more materially impacted, such as the British Pound, are significantly lower. This weakness also looks likely to extend to the British and European equity markets, likely to be lower when they trade Friday night (Australian time).
Staying focused on the long term continues to ring true
Some people may be concerned about the impact of this market volatility on their portfolios. We’d like to highlight the importance of long-term investing and the importance of sticking to your financial plan.
For StatePlus, our approach to investing means our portfolios are relatively defensively positioned. So we expect that the well-diversified, qualities we look for in our assets will help to deal with this market environment.