As you are well aware, the UK has voted to leave the European Union and the British Prime Minister, David Cameron has resigned; up until the evening of the 23rd June bookmakers odds suggested there was only a 16% chance of this happening.
However, despite the financial markets and global institutions having to make revisions to their predictions, the majority will still try to position themselves to continue to profit from this outcome as in many market conditions.
That being said, a number of funds will face uncertainty as volatility spikes. Although this will even out and come to pass in time, this is by no means of short-term impact.
The next step involves the invocation of article 50 of the Lisbon Treaty which opens up a two-year negotiation, after which the treaties which govern the UK’s membership of the EU no longer exist. Interestingly, and adding further uncertainty, the terms of any negotiated exit agreement are subject to ratification by each member country’s parliament.
Funds with low investment in UK economy will not be overly exposed compared to those with a larger international focus, however this will count for naught as it currently stands as the markets are behaving irrationally in the face of this uncertainty.
The UK market opened today down nearly 9% while the US markets are currently indicating down 3% and we have seen holdings move from 30% down to only 5% down in the first hour. We have seen pharmaceutical holdings, the sales of which will be largely unaffected by this decision, open 10% down before rallying back to more sensible levels.
It is difficult to know which prices can be trusted but at the time of writing, but it is important to remember that the markets will, in all probability, over-react on the downside.
Do not be surprised to see the UK market fall further over the next few days. This chaos will throw out opportunities and as your adviser, I am placed to take advantage, but today is a time for cool heads rather than hasty action.
I am, as ever, available should you wish to speak to me and discuss your options.
Below are a number of updates from financial institutions, advisory boards & fund houses.