The global markets clearly didn’t anticipate or discount the United Kingdom’s (UK) citizenry voting to leave the European Union (EU).
Now investors are trying to figure out what Brexit ultimately means for alliances, trade agreements, recession risks and the outlook for future economic growth.
The global market selloff following the news is quite logical; markets hate uncertainty.
The British decision to leave the EU brings into question the very viability of the United Kingdom as Irish and Scottish citizens overwhelmingly voted to stay in the EU while England voted to leave.
Expect a repeat of electoral referendums from the north to secede from the Kingdom.
At the core of the Brexit referendum was the population’s growing frustration with some of the basic principles of the EU plus growing irritation with rules and costs dictated by the EU bureaucracy in Brussels.
Members of the EU can freely travel and work within the 28 nations much like US citizens can do the same within the states. Rightly or wrongly, the Brits got tired of the stresses imposed by open immigration.
In periods of market upheaval, it’s important to manage emotions, in this case fear. We can’t predict exactly how markets will settle or the ultimate outcomes for various geographies.
Our globally invested clients have been underweight exposure to Europe, and accounts that have a mix of bonds and equities are benefiting from the drop in interest rates. Also, as expected in periods of heightened volatility, value is performing better than growth.
At Atlas, we always advocate that investors, if possible, have long term investment perspectives. Systematic evidence shows that equity markets exhibit an upward bias over the long term.
Discipline, not emotion, is a governing driver of how we invest on behalf of our clients. We can say with high certainty: there will be investment opportunities as a result of this upheaval.