On Friday 24 June 2016 (AEST), voters in the UK elected to leave the European Union (EU) after membership for the last 43 years. The ‘Leave’ versus ‘Remain’ camp won 52% to 48%, reversing the result most market participants and polls were suggesting.
Financial market consequences
Perpetual expect the UK’s divorce from the EU to be a long and uncertain process. It will take considerable time for the UK to strike new trade deals with the EU single market and other countries. The form these deals will take is unknown and in the view of Kyle Lidbury, Perpetual Private’s Head of Investment Research the UK faces a material recession risk, the EU a moderate economic slowdown.
The consequences for economic growth outside Europe are hard to predict. The key question is whether copycat referendums by other EU countries will occur and whether the de-globalisation movement gains further ground. Ultimately this may affect productivity growth globally and the returns that can be expected over the long term from financial assets.
Positioning client portfolios to deal with Brexit
Brexit will not change the way Perpetual manages client portfolios. Our recommended client portfolios display significant diversification across asset classes, investment managers and underlying securities to deal with any specific risks which may flare as a result of the Brexit vote.
In times like this it is worth remembering that volatility is a normal and expected part of long term investing. If anything, Brexit has reinforced the value of companies that have strong balance sheets, good management and the ability to grow their revenue in tough times.
Want to know more?
Kyle Lidbury, Head of Investments Research, gives you an overview of current market conditions and Perpetual’s investment philosophy in volatile times.