Brexit image

 

 

We woke up this morning to the news that the UK has voted to leave the EU. And while here at Logic we remain politically neutral, it was disappointing to see the amount of point-scoring amongst our political “leaders” before 7 am!

While the result surprised us given recent expert polls, the short-term volatility in stock markets is not surprising.

 

As ever, it’s important that we don’t overreact and make rash short-term decisions.  All our clients are investing for the long term (which is why we recommend emergency/short-term spending funds, separately to portfolios) and a lot of our clients will have lived through high levels of market volatility over the years.

What’s likely to happen in the markets?
We’ve already seen quite a lot of market volatility already in 2016, due to a variety of factors not just the prospect of ‘Brexit’.  Now that we are entering a period of political uncertainty, this will unsettle the markets further and add to volatility levels.  However, as the UK represents only about 4% of global GDP, its ability to cause a major global economic shock is limited.

The so-called “flight to safer investments” is an understandable reaction, especially after markets rose over the last week as investors priced in a ‘Remain’ vote.

However, the impact on UK interest rates, the level of sterling and the broader economy remains unknown.

We expect that once the “shock” of Brexit has been overcome, all markets will settle down as we prepare for a life outside the EU.  We need to remember that actually nothing very much will change in the short-term, and possibly in the life of this current government, as we have at least a two year period of negotiations coming up.

What about investors?
The biggest impact will be on sterling, UK equities, UK gilts and corporate bonds. As our clients all hold well-diversified portfolios, tailored to their circumstances and personal risk tolerance, this will  go some way to coping with periods of market uncertainty such as this.

What happens next?
Over the coming days and weeks, the ramifications of the UK’s decision will continue to be felt both domestically and internationally.

The implications of this decision are hard to predict with any accuracy. The political and economic landscape in the UK will alter dramatically over the coming days and weeks. The long process of negotiating an exit and subsequent international relations begins immediately but is likely to take two years or more.

What action should I take?
We are confident that the portfolios we have in place for our clients are well positioned to ride out any market turbulence and cope with the expected short-term volatility.

For almost all our clients, trading around the current market volatility would not be appropriate; but others may view it as an attractive opportunity to increase the general level of risk in their portfolios.

We advise to sit back and wait it out, preferably with a cup of tea, whilst we all allow time for this momentous decision in our history to be absorbed.

If you are unsure of the impact on your portfolio and what this means for you, please speak to us. You can contact us by clicking on this link.

The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax and trust advice.