The Brexit decision: A balanced view
In the immediate aftermath of the vote to leave the EU, there continues to be much emotion both for and against the result and with the vote being so close, there is sharp contrast between those joyous with an exit and those desperate for a reverse decision.Ultimately, the decision has now been made and many commentators are calling for all parties, regardless of their persuasion, to come together and make a positive contribution.
We will try to cut through the “noise” of the event and pick out some key factors to be considered by investors, pensioners and everyone taking an interest.As expected, investment markets opened up sharply lower on the morning of the result (Friday 24th June) but timely interventions by a number of a central banks sought to reassure the markets and prevent a major devaluation. Indeed, by close of play on Friday afternoon (24th June) markets had recovered somewhat and the reality is that many markets have already been lower this year than their current levels.
It should also be remembered that many equity markets enjoyed a relief rally before the result was even known and much of the early volatility seen sought to remove short term ‘false’ gains.A further reassuring announcement from the hither-to unseen chancellor, also provided some element of comfort that policymakers stand ready to take action to mitigate the loss of confidence.
That being said, we expect further volatility and weakness and the much clichéd “markets do not like uncertainty” has never been truer, with current uncertainty levels being higher than at any other time in recent political history.Considerations for our investment team include the future for the EU, the potential for action from the Bank of England to “protect” Sterling, the equal possibility that inflation may rise as a result of increased base costs, other central bank action, lower GDP as the continuing (increased) uncertainty reduces business investment and consumer spending, the possibility of a political vacuum in the UK and Europe, and indeed issues in the US, China and beyond.
A recent study by Schroders and Financial Express demonstrates that whilst ten days after the biggest one day falls in the FTSE All-Share index (driven, of course, by the behemoths of the FTSE 100), markets were usually even further off, one year later there had invariably been a significant recovery to an average c. 16 per cent positive return. We always felt that the long term potential upside of a vote to remain, given other economic and market concerns globally, was limited.Our strategic financial planning process is designed to ensure that only long term ‘growth’ funds are designated for investment and that ‘income’ and ‘access’ needs are accounted for separately and securely. In this manner, we seek to ensure that ‘growth’ funds retain an automatic long term horizon and whilst short term volatility is never welcomed, we believe that those with a longer term view could see a potential economic benefit from UK independence.