Brexit – Where next?

The EU referendum result was a surprise to many of us. Initially markets witnessed a severe sell off only to recover quite quickly. It is far too early to be able to make any sensible assessment of the medium or long term economic impact for the UK but no doubt there will be plenty of debate and uncertainty to come. It is likely that volatility in stockmarkets will be with us for quite some time yet. The recent UK bank base rate cut to a new historic low of 0.25% and a return to quantitative easing (ie. printing of money) by the Bank of England is indicative of the need to temper the immediate fears of recession, maintain confidence, encourage spending and yet keep inflation under control. The immediate reaction to the Brexit vote was for markets to favour those UK companies which derive their earnings from overseas, especially outside Europe, while those focussed on the UK and EU were regarded as being at risk of performing poorly. The value of Sterling fell against the Euro and the US Dollar, which caused the share price of global companies, whose earnings are mainly in dollars, to rise substantially. UK exporting companies also improved as their goods become cheaper in foreign markets, but those focussed only on the UK came under pressure. Only time will tell who the real winners and losers will be, but we do expect that inflation will rise due to the level of goods we import becoming more expensive. If you have a large weighting to UK companies in your portfolio, you may wish to revisit this and consider whether further diversification overseas or into other investments is merited. Some investors are now taking profits after good returns this year. However before making any decisions you should take professional advice. Whatever happens it is important to make sure your investments are professionally reviewed and correctly positioned. It might be a rollercoaster ride but we are by no means ‘doomed’.