Not wishing to add to the flurry of speculation last week, we have consulted our respective investment partners and so we are now in a position to offer a considered viewpoint.
Last Friday's European Referendum result came as a shock to the financial markets, and now that the dust has settled it is important to look at the potential impact of the result on investments.
Whilst there was much movement in share prices on Friday 24th June, as the day wore on a more rational response was exhibited. Many sectors such as pharmaceuticals performed strongly as investors recognised the potential benefits of a weaker currency on their earnings. Companies which were predominantly exposed to the domestic economy fared slightly worse. The more global FTSE 100 index fell by 3.1% on Friday but the FTSE 250 index, whose constituents are generally more exposed to the health of the UK economy, fell by 7.2%. Housebuilders, Banks, Insurance and Retail were all badly affected. As of this morning the FTSE 100 is up by over 2% and it is higher than it was just a few days ago.
What does this tell us?Many economists predict a volatile outlook for the UK economy but it is important to remember that we will remain in the European Union for at least another 2 years with continued access to the single market during this time. Therefore any short term moves on domestically focussed shares may have been actioned too soon as many of these companies have a strong balance sheet.
Despite the weakening value of the Pound making the UK a more competitive place to manufacture goods for export, foreign investment will be uncertain. This could have an impact on employment therefore diminishing consumer confidence.
So with the pound weaker, shares fluctuating, property being talked down and the continued political uncertainty from all political parties, we are now entering a period of complexity and the interaction between politics and economics makes the situation difficult to predict.
We are now facing a divided nation which needs guidance, direction and strong leadership to push both the economy and the country's future forward. The country has spoken and whilst the economic uncertainty will continue for some time, we must remember that Brexit is a process rather than an event and it is an issue for the whole of the EU, not just the UK.
Although we never confess to knowing all the answers, it is important to remember the basic principles of multi-asset investing. By recommending multi-asset funds to our clients (often on a global basis), we diversify risk and dampen the volatility of returns.
The benefits of such an approach has been amply demonstrated over the past months with this philosophy only being constrained by the investor's appetite for risk. Many of the funds which we recommend have been adjusting their investment content prior to the Referendum and have been active in doing so since Friday as well. The way in which these funds operate means that adjustments are constantly being made on your behalf to ensure the investment journey is as smooth as it can be, irrespective of the political or economic climate.
Whilst we hope these comments offer some reassurance, should you wish to discuss your investments specifically, please contact us. Naturally if we can also assist your family, friends or associates, we would be most happy to do so.