BREXIT Thursday 23 June 2016
Though the UK referendum was non-binding, it is expected that the UK government will follow though and eventually leave the EU. This process can take at least 2 years, if not more. Until then, the UK will continue to abide by EU laws and agreements already in place. The Conservatives search for a new leader and Labour attempt to oust theirs. Not to mention the vote of no confidence from the credit agencies, after Britain lost its last remaining AAA rating yesterday and two other agencies have the country on negative watch.
Unchartered Territory for Investors
No member of the EU has ever left, so the UK’s decision leaves investors in unchartered territory. The market had priced in a different result to Thursday’s vote. Bookmakers odds suggested only a 16% chance of a successful vote to leave and the market got caught off-guard, but the G4 central banks didn’t; the Bank of England has stood firm and have contingency plans in place should the UK economy need them. As expected, the market’s first reaction was to panic and go into risk-off mode whilst G4 central banks stood ready to act. Believe it or not, the FTSE100 closed the week up 2% for the week and still more than 3.5% ahead of its closing June 14th value! Equities rallied in the days before the vote in anticipation of a “remain” result.
While Friday’s market movement was significant, it should be noted that some indices simply reversed the gains they made the week before. The Euro Stoxx 50 closed less than 1% below its low of June 14th, while the S&P 500 closed just 0.6% below its low from June 16th.
What does this mean to me and my investments?
In order to stimulate growth, all major central banks, including the Fed, now are more likely to cut interest rates than to raise them. It appears that this quarter’s record jumps in market volatility surrounding Brexit and Federal Reserve policy will have affected equity, currency, commodity and bond asset class valuations much more than they will have affected the upward path of global output. In Q3 2016, the USA, Europe, and China (the three largest economic regions) will expand at current or higher rates. World growth will be supported by very low interest rates, high banking system liquidity, and low prime materials prices over the coming months, lifting valuations for asset classes that benefit from stronger global expansions.
How do I know my investment is positioned well to deal with the current uncertainty?
Always consider your investments as a whole. When markets are fluctuating wildly it can be tempting to put all your investments in the relative safety of cash. However, low risk usually leads to lower long term returns, interest rates on savings accounts have been at an all-time low for some years and in light of anticipated cuts in interest rates this trend is likely to continue to worsen. Of course, everyone should have some cash for emergencies and unexpected events, but for those with a longer term investment outlook this should be supplemented with investments in other assets classes and geographical spread that offer better potential for real capital growth.
Speed Financial Solutions are a highly qualified financial services provider on the Costa del Sol. We believe in offering the best possible service to our clients and are able to offer the expert knowledge of a qualified Chartered Financial Planner specialising in Taxation and Trusts, who has satisfied the requirements of the Chartered Insurance Institute in the UK.
Please take a look at our website – www.speedfinancialsolutions.com for further information and contact us (Tel 951 315 271 or 951 318 529) – we are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Meetings with us are free and without obligation.
Andrea J Speed AFPS(DM), M.A.
Principal, Discretionary Inv Manager and Chartered Financial Planner
Speed Financial Solutions
28 June 2016