Britain has voted to leave the European Union after 43 years of membership, plunging the country into unchartered political and economic territory.
The vote in favour of Brexit creates significant political, economic, legislative and market uncertainty for the UK, and it’s likely to continue for some time.
Along with global share markets, the Australian share market dropped sharply in response to the news that Britain will leave the European Union; with the ASX 200 and All Ords falling more than 3 per cent on Friday 24 June.
Markets have been reacting to the possibility of a Leave victory for the last few weeks. Following the vote the British pound, Eurozone shares and global shares have all suffered losses. Meanwhile safe haven assets like the $US, Yen, sovereign bonds in major countries and gold have all gone up.
In the short term, there will be significant uncertainty in terms of the economic impact on the UK and European economies in particular, but also globally; but investors shouldn’t let temporary stock market fluctuations derail their long-term investment strategy.
This uncertainty is likely to persist for some time while the nature of the UK’s trading relationship with the EU and elsewhere is negotiated and companies put off decisions about relocation, new products and innovation.
Finally, the possibility of further referenda on EU membership in other countries and the possibility of one member or another voting to leave the union may plague European markets for some time. The same may apply in the UK itself, where talk of a second Scottish referendum on independence from the rest of the UK has already begun, given the strong support for remaining in the EU coming from Scottish voters.
Given the speed with which markets typically react to such events, we don’t think investors need take any immediate action as a result of the referendum.
Australian investors with well diversified portfolios targeting longer-term objectives should not be overly worried about the result.
We will continue to monitor events closely and consider the impact of the referendum and any significant market moves to determine whether any changes in portfolio positioning are warranted.
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