Investment Implications of Brexit
June 24, 2016
Britain has voted to leave the European Union. No one can be surprised. In fact, the polls were so close, either outcome would not have been a surprise.
As usual, popular perspective is driven by hype. The focus being hyped today, of course, is downside markets moves. Fears are being fanned. That sells newspapers and keeps investors distracted. However, the fuller picture that is ignored is very different.
Consider that in the last six trading days the UK equities ETF (EWU) exploded upward by 14%. The German stock ETF (EWG) rallied more than 10% over the same period. Declines at market open today for these two ETFs did not hit new monthly lows. Both of these ETFs are therefore today still significantly above their February lows. As it turns out, the impact on North American markets has been quite muted. All in all, a much different story than is being promoted.
Not to be denied is that financial market volatility is high. The EU has taken a blow. More are likely to come. There are numerous extremist and anti-immigrant parties in various European countries that are also auguring to leave the EU. Uncertainties with Europe will continue and anti-populist movements around the world will gain further traction.
Yet this volatility should be viewed opportunistically. A variety of global assets will be indiscriminately sold. For example, many Asian markets are only marginally affected by Brexit but are supported by a mix of easy monetary policy and solid longer-term fundamentals.
The response from central banks will also be enormous. Already, the Bank of England is providing additional liquidity support to banks. Expect more central banks to follow. We will be monitoring these developments closely.
Looking ahead, our investment outlook has not changed significantly. We continue to live in an era of new realities. The best approach for clients is wide global diversification with exposures tilted to longer-running “super trends”. We remain committed to that discipline and investment style.
Tyler Mordy, President and CIO
A recognized leader in the design and application of “global macro” ETF portfolios.
Categorised in: Global Thinking
This post was written by mstockburn