What a surprise! Despite all the Polls pointing to a “remain” vote the UK has elected to Leave the EU.
This move has shocked the world and global investment markets. Our market has swung wildly all day but as it became increasingly clear they were leaving it fell, 3.7% at time of writing.
A Brexit opens up short- and long-term risks. Short-term, the pound has been murdered putting it at the lowest level against the US dollar since 1985. This is hurting those dual-listed companies (like BHP & RIO).
Short-term credit markets are also tightening, which puts companies reliant on short-term financing at risk (banks, namely).
In reality, it’s not a good day to own assets denominated in pounds, and UK share market futures are down 9% as I type.
Longer term, a Brexit opens the door for other countries to leave the EU, particularly the likes of the PIIGS (Portugal, Italy, Ireland, Greece and Spain), who shoulder massive debt burdens they’re unable to shed so long as they’re part of the EU. Brexit could create a geopolitical domino effect with far-reaching implications that you wouldn’t know until it happens (but perhaps to speculate Greece Leaves next and cancels all debt owed to the EU).
The reality is, no one saw Brexit as the likely outcome. Markets are being savaged, but the leave process wont be overnight and I think the markets will overreact and create opportunity.
Hold on to your hats because the rollercoasters downhill section is always followed by an uphill climb. We look for the opportunity this will bring to deploy cash at great prices.
By: Nick Rundle