So Brexit has won the day and the UK has voted to leave the EU. What impact will the result have on investors?
The immediate response in the City was a sharp fall in the FTSE 100 of 8.7% on opening and also in the value of the pound, which fell to its lowest level for over 30 years. Global stock markets followed suit - the DAX ended down 6.78%, France's CAC40 fell by 7.9%, whilst the Spanish market was down 12.68%, its worst fall ever. In the US, the S&P 500 fell 3.6% and the Dow Jones 3.39%.
It is the sort of volatility to be expected in uncertain times. To put the falls into perspective, however, the FTSE 100 recovered somewhat later in the day to close down by 3.15%. This closing figure of 6138 means the FTSE 100 actually ended 2% up on the week – and is up about 10.8% since February’s low of 5537.
The resilience of the FTSE 100 can be explained partly because over 70% of earnings for many of the constituent companies are derived internationally. In contrast, the FTSE 250, which is perhaps more representative of the UK economy as a whole, with more UK-focused companies, ended the day down 7.2%, its worst performance since Black Monday.
So greater volatility in the UK and other stock markets is to be expected in the short term, as is the fall in Sterling against other currencies. There is also likely to be a rise in UK bond yields (and hence a fall in bond prices).
However, volatility has always been a key feature of equity markets and as the Brexit article in our Independent News magazine points out, you need to take a measured, long-term approach to investing. There will be both uncertainty and volatility for a while but investors should not panic or act in haste. It is not clear that Brexit is a bigger risk than, say, the volatility seen earlier this year in China, or the Middle East, Putin’s increasing militarism or even Donald Trump becoming the next US president.
For all our clients, we aim to create robust, well diversified investment portfolios, in line with your attitude to risk, that can cope with all types of investment environments, so that they last the course in the long-term. We don’t recommend a knee-jerk repositioning of your portfolio every time there is a major event or disaster. So in many respects, the current situation requires no major changes to your portfolio at all.
Of course, as markets fall, there are always buying opportunities for the more adventurous, so contact Kellands to discuss your options.
As our Independent News Brexit article states, market volatility can be unnerving, but having a global strategy and broad diversification of assets should help to smooth the inevitable ups and downs.
To discuss the implications of Brexit on your portfolio, or to review your particular situation, contact Kellands today.