Stock markets around the world rallied this
\nweek while the British pound strengthened. This
\naction has swiftly reversed with the global equity
\nmarkets off, bond yields plummeting, and the
\npound dramatically weaker. Not surprisingly, gold
\nhas rallied. The vote has clearly caught markets on
\nthe wrong foot.<\/p>\n
This immediate reaction has been swift but is likely The longer-term implications of the \u201cLeave\u201d<\/em> vote Perhaps more damaging will be the longer-term In the coming days, investors will be buffeted by It is also a time to review portfolios and reassess The long-term political, economic, and financial The
\nto reverberate across time zones in the coming
\ndays. Perhaps the three most immediate questions
\nwill be: What will a new government in the UK look
\nlike? Will the EU offer to renegotiate more
\nfavorable membership terms in light of the \u201cLeave\u201d<\/em>
\nvictory? How soon will the UK invoke Article 50 to
\nbegin the withdrawal process? These questions will
\nbring a high degree of uncertainty and may
\ncontinue to pressure asset values globally, but
\nmore directly across Europe and the UK. <\/p>\n
\nare more difficult to handicap. For the immediate
\nfuture, the UK will continue to exist under EU law
\nthroughout the withdrawal process. However,
\nbusinesses will quickly begin assessing the new
\nlandscape of how they will operate outside of EU
\noversight post-withdrawal. This uncertainty will be
\njust another headwind constraining activity across
\nEurope in a period where organic growth has
\nalready been difficult to find. The developed
\neconomies of the U.S., Japan, and Europe have
\nbeen unable to come up with a catalyst to shock growth meaningfully higher. The \u201cLeave\u201d<\/em> vote will
\nmake finding this catalyst even more difficult.<\/p>\n
\neffects on the European Union. Given that euroskepticism
\nhas been on the rise, the precedent set
\nby the Brexit vote may compel other EU members
\nto contemplate withdrawal. Unless EU leaders can
\nbetter unify their members in both philosophy and
\npolicy, the union could face a more existential
\nthreat in the years to come. In this regard, the EU is
\nlikely to be an onerous counterparty in the UK
\nwithdrawal negotiations, if only as a deterrent to
\nother nations. This again will bring more
\nunknowns, more uncertainty, and more volatility
\nacross assets.<\/p>\n
\nconflicting data, new risks, and wild price swings.
\nThe macroeconomy, already laboring under subpar
\ngrowth, may stumble again. But asset price
\nvolatility is often an overreaction to the underlying
\neconomic fundamentals which evolve more slowly.
\nActivity across the UK and Europe will not come to
\na standstill. Companies will continue to produce
\nand employ \u2013 despite the clouded outlook. Central
\nbanks will likely supply additional liquidity to act as
\na firewall against further contagion. And policy
\nmakers will quickly seek to address areas of acute
\nvulnerability. The next few days will certainly test
\ninvestors\u2019 tolerance for risk.<\/p>\n
\nthe opportunities a Brexit vote may uncover. For
\nstarters, extreme price moves bring with them the
\nchance to rebalance and reset portfolio allocations.
\nStock valuations, which have been elevated
\nrecently, will look more reasonable. Plunging bond
\nyields will result in previously unthinkable (and perhaps temporary) gains in fixed income
\nallocations. While rebalancing can\u2019t prevent losses,
\nit helps to mitigate a potentially larger problem \u2013
\nthe risk that the portfolio wanders too far from its
\nlong-term risk\/return objectives. The market
\ncalamity following Brexit may also provide a good
\nopportunity for investors to assess their true risk
\ntolerance. \u201cCan I live with this level of volatility?
\nDo I have the stomach for this?\u201d<\/em> This type of
\nfinancial self-assessment can only be done during
\nperiods of actual losses. It cannot be simulated in a
\nlab or understood from the textbooks. For those
\ninvestors unfazed by these market gyrations, what
\nideas have emerged? Which assets now look cheap
\nand can be purchased \u201con sale\u201d<\/em>? Which assets
\nhave become more overpriced and can be shunned
\nor trimmed? It is almost a clich\u00e9 to say that
\n\u201cvolatility presents opportunity\u201d<\/em>, but market
\ndislocation can bring new ideas into sharper focus.<\/p>\n
\nrepercussions of the \u201cLeave\u201d<\/em> vote are incalculable
\nat this point. But markets adapt. Policymakers
\nadjust. Businesses will change course while they
\ncontinue to seek profits. Prices will reset.
\nOpportunities will emerge. Market volatility
\nbrought on by the UK\u2019s historic Brexit vote is no
\nexcuse to disengage from portfolio planning.
\nInvestors who are willing to look forward, with one
\neye on the opportunities and one eye on their
\ngoals, will be more likely to realize both. <\/p>\n","protected":false},"excerpt":{"rendered":"
\ninitial flight-to-quality reaction across asset classes
\nhas been exacerbated by the market\u2019s misplaced
\nconfidence in a \u201cRemain\u201d victory leading up to the
\nvote. <\/p>\n","protected":false},"author":1,"featured_media":53644,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,1651,1437,2087,2068,1680],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/53646"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=53646"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/53646\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/53644"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=53646"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=53646"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=53646"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}