What has changed since June 24th?
Wall-to-wall news coverage of the EU Referendum has certainly done its job of whipping up a frenzy of opinion, but what are the facts following the British vote to leave the European Union after 43 years inside the bloc?
Well, the most obvious fact is that the majority of British citizens voted to leave. Article 50 of the Lisbon Treaty will not be triggered by the current Government. The United Kingdom is just as much a member of the EU as it was on 23rd June. The Prime Minister of the United Kingdom has resigned. Nearly every member of the Shadow Cabinet has resigned. Oh, and Roy Hodgson has also resigned for his part in another (perhaps more widely predicted) European exit…
Beyond that, there isn’t very much concrete for markets or investors to work on. Whilst in theory Britain will indeed leave the EU, the process behind triggering Article 50 may never actually come to bear. Firstly, the referendum was not legally binding. Then there is the issue of no time constraint on when a British government must begin the process. Various prominent Leave campaigners have already unashamedly backtracked on promises made and most Parliamentarians are overwhelmingly in favour of remaining a part of the EU. From a purely dispassionate view, it seems we have gotten ourselves into a right old pickle over nothing.
What is important to remember is that the impact of everything thus far is down to a combustible mix of politics and egos, creating a vacuum of certainty that is giving markets cause to panic. It’s important to remember that we’re not in a market freefall situation that some had predicted (at the time of writing, at least!). The fundamentals behind market valuations have not changed dramatically. Yes the UK’s credit rating has been downgraded, but this is by an industry that gave credit default swaps AAA ratings – they’re possibly trusted even less than politicians. So what we’re seeing then, is an entirely predictable level of market volatility as uncertainty prevails. ‘Business as usual then!’ I hear you cry.
The truly material impacts of the UK leaving the European Union, whatever they may be, are unlikely to become apparent until October at the earliest when a new Conservative government is formed (or on the off-chance a General Election is called). Until then, expect continued market volatility, but also remember that volatility is as much an opportunity as it is a challenge; within our portfolios we will continue to take advantage of volatility where we can and keep you updated on how we’re seeing events unfold.