So markets, polls & most economists have yet again been proved wrong. Contrary to expectations, our country has voted to leave the EU, proving that UK people distrust European politicians even more than they dislike British ones.
The reality of the likely referendum outcome hit home just before midnight when the pound was trading at around $1.50 to the US Dollar. As the Brexiteers advantage became clear, the pound collapsed by 12% from its midnight high.
Global share prices have plunged too. Index futures, which trade overnight, show the FTSE 100 dropping by nearly 10%. US shares have fared a little better with S&P 500 futures off by around 5%.
Short term, our long position in US dollars in our Cautious, Balanced and Growth portfolios will cushion the blow to asset values. We also hold some insurance in the form of put options on the S&P 500 index, which give us the right to sell US shares at a predetermined price. These have shot up in value over the last few hours.
The UK now faces a period of great uncertainty, and so does the EU. The SNP has already noted that Scotland, which voted to stay, sees its future in the EU, so it is likely the Scots will demand another referendum on their future as part of Britain. More immediately, David Cameron’s position is unsure and George Osborne, deeply unpopular with “leave” campaigners, is almost certain to be forced out as Chancellor of the Exchequer.
Our European partners (I believe I can still call them that for a while longer) will be assessing what this means to them. Our decision will give encouragement to other anti EU factions, of which there are many. Brexit may trigger a domino effect throughout the continent, which will add to uncertainty. This will make it difficult for big UK employers, such as banks, insurers and car manufacturers, to make longer term plans, which may curtail business investment. This will have economic consequences and a UK recession, perhaps spreading throughout Europe, is possible.
We will continue to closely monitor markets and political developments and I will issue a more detailed review later in the day.
Gary Reynolds CFA ACII DipPFS IMC Chartered FCSI
Chief Investment Officer
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