Post-EU Referendum reaction
This was not the result markets were expecting with UK assets staging a relief rally up until polls closed, on the view the ‘Remain’ campaign had done enough to secure victory. However, unlike last year’s general election, this time around the polls proved far more indicative of the final result as too close to predict.
The one guarantee is that there will be much uncertainty and volatility in stock markets for the next few days, weeks and even months and the newspaper headlines will be very extreme. For example, the headlines Friday morning concentrated on the FTSE100 falling 8% and sterling plunging to the lowest level since 1985. However, these are the main facts that affect our wealth (markets are rapidly changing though):
On Friday the FTSE 100 started the day down 8% but recovered significantly to finish just over 3% down.
The FTSE100 is now back to the same level it was a week ago on the 17th June and is up 8% since the low in February.
On Friday sterling fell 12.8% against the Yen, 8.7% against the US Dollar and 6.0% against the Euro. This will affect the cost of our summer holidays.
Sterling falling has helped our overseas investments rise significantly despite stock markets globally falling. This was our hedge in the event of a leave vote as we had more wealth than normal invested overseas. Thus our investments in the US stock market were approximately up 5.5% on Friday.
One of the expected effects of a Leave vote is that inflation will rise and the City is now pricing this in. This is because our imports will become more expensive due to Sterling falling. We await the implications and knock on effects of this. This could be a factor that sends the UK economy into recession or allow us to export more goods overseas and thus help the economy.
Despite all the doom and gloom they actually all rose on Friday as follows:
Whilst the portfolios have benefitted from their positioning before the vote, we do know that after such a massive change in the economic and political world, there will be an increase in volatility. It is always important not to panic and to reassess which direction the trends move going forward. This may lead to a repositioning of the portfolios. Stock markets are currently down today but so is sterling and this will once again help insulate our portfolios.