It’s not you it’s me!
In what has been an unexpected move, the British decided last week to vote to leave the EU. The result of the referendum has already led to the resignation of the Prime Minister David Cameron and the fallout does not stop there as Scotland’s first minister has renewed calls for another independence referendum which may see the beginning of the end of the UK as we know it.
How Have Markets Reacted?
As expected the financial markets have not reacted well to the result of the referendum and will remain volatile in the short term due to the uncertainty. At the time of writing this piece Sterling has dropped to £0.82 pence against the Euro which makes Irish exports to the UK more expensive.
Global stock markets are down across the board with European indices finishing down 7%-8% on Friday while the US markets lost circa 3%. Markets have traded downwards on Monday too. Traditional safe havens such as Gold has bounced up by 4% while investors also poured into Government Bonds.
Markets were not expecting the result so the reaction is not unexpected albeit somewhat kneejerk. It is difficult to find anyone who is not negatively affected by the result of this referendum. For example, Irish residents who receive an income from the UK in terms of a pension or investment income will see a reduction in their income due to the weakness of Sterling while individuals who have a pension fund or investment portfolio which is likely to have exposure to the financial markets will also be affected.
At times like this, it is important remember that investments either personal or via a pension fund are made with the long term in mind and generally speaking equities in the long run will recover despite short term volatility.
It is also equally important to note that your personal or pension investment portfolios have been designed so that you the investor are not overweight in any one sector, currency or geographic location and as such your exposure is global with no particular bias towards the UK. Most investors are invested in well diversified global portfolios which invest in large blue chip companies who themselves do not have an overexposure to the UK.
At the moment we recommend that investors sit tight and make no sudden changes to a portfolio which will crystallise a loss. What the Armageddon of 2008 has thought us is that over time portfolio’s will recover, particularly well-constructed, diversified portfolios which invest in good companies.
We are monitoring developments closely and intend to provide updates as things develop over the coming weeks and months. If you have any queries at all, please feel free to contact us.