Current investment update
The United Kingdom Brexit Vote – how this is affecting investment markets
On Friday 24 June 2016, stock markets throughout the world fell between 3% to 8% due to the surprise Brexit vote regarding the United Kingdom’s referendum on its future with the European Union (EU). The following provides a few brief comments on this issue.
The fall in the markets on Friday is primarily due to the surprise vote for the UK to leave the EU after more than 43 years of membership. Up until the vote, the markets had been factoring in a slight ‘remain’ victory – for UK’s continuation within the EU – so the market reaction is no surprise given the shock outcome.
The markets most impacted were the pound, UK stocks and European stocks. Australian markets were the first to be affected given that our markets were operating when the result was finalised Friday mid-morning (Australian time). Later that day, as time zones caught up with the news, the selling continued in Europe and the US.
One source of the ongoing uncertainty relates to the process of ‘divorcing’ from Europe, with unknowns including the timing and ability for the government to negotiate an exit, and also putting in place new trade arrangements. This is further complicated by the resignation of the UK Prime Minister and expected changes to the government’s key ministers.
Statewide suspects the market uncertainty will subside once these issues become more defined in the next few weeks. Sadly for the UK and Europe, the whole episode has weakened both entities and may possibly cause a recession in the UK. However, no one is sure until the new leadership and the path of exit becomes clearer.
In terms of portfolio positioning and strategy we have come into this environment with a slight defensive posture in holding more cash and absolute return strategies, which we believe will provide some buffer to the market volatility. There are no planned changes to our strategy other than seeking to take advantage of any market weakness by reducing our cash weight.
As always, we strongly believe that short-term forecasts should not drive investment decisions and we also believe that portfolio diversification across all asset classes should be at the core of our members’ investment strategy.
It is important to remember that superannuation is a long-term investment and your timeframe in the market spans not only your working life, but your retirement also.
If you have any questions, or require any further information, please contact our client services team or Statewide Financial Planning on 1300 65 18 65.