On June 23rd, UK voters decided to leave the European Union (EU) by a margin of 52% – 48%. For months in advance of this referendum, the potential for the UK leaving the EU has been known as “Brexit”. In the immediate aftermath of this historic decision, global markets have been thrown into chaos, UK Prime Minister David Cameron has resigned effective in October and investors worldwide are justifiably asking what’s next?
Here are our quick takeaways:
This is as much a political issue as a financial event. Brexit is not a replay of 2008 for global financial markets, but make no mistake; the impact of this event will be large. There are many questions still unanswered. First and foremost, who will emerge as the political leadership for the UK and when will the formal process for leaving the EU begin?
Despite the market volatility in recent days, the S&P 500 (pre-market 6/28/16) is down only 1.0% year-to-date and within 6% of its all time high set in 2015. American equity markets are still well above the levels seen in February of this year and September 2015. Foreign and specifically European markets have suffered worse declines and we would expect in the near-term for this pattern to play out. While all markets will likely display heightened volatility in the coming days and weeks, foreign markets are likely to fare worse.
The confusion over what happens next will likely continue in the weeks and months ahead. As no country has ever left the EU before, there is no reliable blueprint for what lies ahead. Government and business leaders around the world will need to plan for a multitude of outcomes as trade agreements, currency movements and market reactions going forward are still unknown.
Events like this are a reminder that it’s always a good idea to periodically check in on your investment portfolio to re-affirm your investment mix and rebalance if necessary. The silver lining for long-term investors is that volatile periods like this often provide great opportunity. During periods of broad-based price declines, great companies go on sale and nimble active managers can make changes to their portfolios to capitalize on the eventual recovery.