The United Kingdom voted to end its 43 years of membership with the European Union. The margin was 51.9% to 48.1%. U.K. Prime Minister, David Cameron, announced he will resign but will stay until October.
Short-term, we anticipate market volatility will be high in the aftermath of this result. The markets fully expected a “stay the course” vote and that the U.K. would choose to remain in the European Union.
So what is driving the market volatility and concern today?
- The contagion affect – If Britain can leave, what’s preventing France, Italy and other EU countries from making the same choice?
- The unknown – we’re looking at, by some expert opinions, a two year process for Britain to negotiate its ultimate exit. Markets do not like the unknown…
- Trade – The impact on Britain’s trade inside the European Union and globally; as agreements need to be negotiated. For perspective, the EU as a whole is the third largest economy in the world. Concern is a slowdown will not be contained to just Europe, it will have a global impact.
- Currency – a global rebalancing seeking currencies deemed as “safe” in the wake of the U.K. vote.
- Banking – banks need to maintain liquidity in the system and reassess their future business operations in Europe.
In short, there are many questions to answer and challenging days ahead for the U.K.
As you might expect, we don’t anticipate making any major changes to investment portfolios and are not recommending any “reaction” today. We expect an increase in volatility but assume that as we all have a better understanding of the timeline and implications. Things will settle down. There are always silver linings in these market events. We expect the managers you have in your portfolio will be taking advantage of opportunities as well as playing defense as needed. We will keep you apprised of any changes we choose to make.
As always, feel free to contact us with any questions. We will remain diligent, reviewing the portfolio for risk/return and seeking opportunities and managers that can add performance given the current market conditions.