Repercussions of Leave vote may not have been felt yet

CONFOUNDING any guess that I would have made at the time, the FTSE-All Share index began the week over three per cent up on its pre-Brexit level. Government bonds have also performed well. So what is going on?

Can we mark Brexit down to “a little local difficulty” and sound the all-clear?

The short answer is, unfortunately, no. Initially at least, sterling investors have enjoyed a windfall from the weak pound.

The devaluation is also giving opportunities for overseas investors to buy UK assets at a discount.

This is highlighted both by a rumoured uptick in inquiries for central London property and, more eye-catchingly, by the announcement of an agreed £17 a share bid for ARM Holdings by Softbank of Japan, which is paying over 25 per cent less in yen terms to acquire this crown jewel of UK intellectual property.

The suspicion lingers, however, that the repercussions of the Brexit decision have yet to be felt.

Over the next six to nine months we will see not only the direct effect on growth in the UK and Europe of this blow to business confidence, but also the impact on the political landscape.

That is not to say we should take no reassurance from the markets. It was a challenge to the resilience of the European financial system. The measures central banks have put in place to address outside “shocks” passed an important test.

Furthermore, the world picture has many bright spots. The US remains highly resilient whilst emerging markets are improving.

If the last few weeks have taught us anything, it is that Britain is not as important to the world as the world is to Britain, hence the importance of retaining a global perspective when making investment decisions.

Our view prior to Brexit was that the world would “muddle through” and risk takers would be rewarded for their steely nerve. Our view now is the same, but there is less margin for error and a higher level of background political risk.