The outcome of the Brexit Referendum confounded the predictions of the opinion polls, the bookies and the markets. All three ended the working day on 23 June with the assumption that the Remain side would win, albeit by a small margin.
That consensus is one reason why the markets moved so sharply when the results emerged. Initial falls in the pound and the world stock markets were a knee-jerk reaction of a near instantaneous change of view. The resignation of the Prime Minister merely added to the short term concerns, even though it was always likely soon after a Leave vote.
Brexit: pause and take stock
At such times, it is worth pausing for breath before taking any precipitous action. History suggests that trying to exploit the unavoidable turbulence carries considerable risks. As the Governor of the Bank of England said in his statement on 24 June: “Inevitably, there will be a period of uncertainty and adjustment following this result.
There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold. And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world.”
The next few days and weeks will see sharp market movements, probably in both directions, as the markets find a new equilibrium. Those are conditions traders will attempt to exploit, but for long term investors a wait-and-see approach will generally make more sense.
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Categorised in: IFAs
This post was written by Paul Verwoert