In an historic development, U.K. citizens voted in favour of their country leaving the European Union (EU) by a slim margin of 52% to 48%. The news triggered a dramatic reaction on global financial markets on June 24, with share prices declining sharply and prices for bonds and gold increasing. In currency markets, the U.S. dollar was up against most currencies, while the euro and British pound dropped. Many professional investment managers took advantage of the sharp declines to buy quality companies at attractive prices. Just a few days later, the markets had fully rebounded.
The financial community in general believes that the prospect of the U.K. leaving the EU – or "Brexit" – will be harmful to the British, European and global economies and their financial systems because of the increased uncertainty and impediments to trade and finance. With regard to the day-after market reaction, many market participants were simply caught by surprise. Although the vote was seen as too close to call throughout most of the campaign, polling in the final week suggested that the "remain" side had a slight advantage.
This event will likely lead to greater political uncertainty and financial volatility. Other things to consider include the fact that the referendum result is not binding on the British Parliament, and any separation from the EU will take years to negotiate. Meanwhile, companies continue to do business much as they did before and the global economy continues on its path of slow but positive growth.
What should I do?
My advice for clients is to simply stick to your existing long-term investment plan, which is tailored to your individual objectives and time horizon – criteria that are not affected by Brexit. Your plan takes stock market volatility into account by having a well balanced portfolio.
If you have any questions about your investments, please contact me. Once again, I thank you for your business and I hope that you and your family enjoy a safe and happy summer.
Joan
The information in this letter is derived from various sources, including CI Investments, Signature Global Asset Management, Cambridge Global Asset Management, the Globe and Mail and the New York Times. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.
