England voted Yes to Brexit
Voters in England have spoken and voted in favour of Brexit, which means Britain is exiting from the European Union. In the coming months, British and European leaders will begin negotiating the terms of Britain’s departure which can take up to two years to finalise.
Britain’s exit will affect their economy, trade, immigration policy, and lots more and will take years for the full consequences to become clear.
Prime Minister’s Resignation
Through pressure from within his own party, British Prime Minister David Cameron promised to hold a referendum on leaving the EU as a result of the conservative party winning the 2015 election. Cameron didn’t want to hold the vote at all however true to his word, it was held and he campaigned the “Remain” vote however let members of his own party to campaign for “Brexit”.
When the Brexit vote won, Cameron resigned as his views were in contrast to the British people. It is unsure what will occur now with the Prime Ministership; who will take the role or if the Conservative party will even remain as is or splinter due to the separation in its own party on the Brexit issue.
Immigration
Being part of the EU means that anyone living in an EU country can travel and live freely in any other EU country, and this will now change. While they could negotiate the same or similar terms, it seems that this was a contentious issue that possibly contributed to the Brexit vote winning. At present, it is estimated that around 1.2 million Brits live in other EU countries while there are around 3 million non-Brits that have legally moved to Britain as part of the EU rules.
The Economy
Brexit means uncertainty with Britain’s largest trade partner; the European Union. Shockwaves were felt in global markets, with around $2 trillion wiped off the world markets. The London stock markets finished down 3.1% and in Australian markets, the ASX200 finished 3.2% down. The pound also saw a significant drop.
Some say the decision caught markets by surprise as it was expected that Britain would remain part of the EU. In any event, the decision has been made and the initial reactions have been felt, which was representative in the markets on Friday. We will now see more informed decisions with market movements.
Since more than half of UK trade is with the EU, they will be taking the next two years to negotiate heavily to seek favourable trade options, like their neighbours in Norway and Switzerland (not part of the EU) have successfully done themselves. This means we won’t see the full ramifications to markets for years to come.
While volatility is expected to continue for at least the week, it is the impact on investor sentiment that will determine longer market volatility. At present, Australia has relatively low trade with the UK and the European Union so we will be hit more by the fallout of the world digesting the ramifications of Brexit.
Investing in a diversified portfolio across investment types, portfolio sectors and even markets assists to limit short term volatility like we’ve seen from the fallout of Brexit.
If you’re concerned about your portfolio or other investments, please do not hesitate contact your adviser at JBS for a chat. Please also see our Monday Markets newsletter for additional detail on the affect on our Markets including a video summary.