Brexit – Are the market falls really that big?Posted on
The decision has been made and perhaps some of those Brexit supporters jumping around and celebrating in front of our television screens throughout the night, may be wondering what they have done in a couple of years’ time. Especially if the Brexit decision has caused such a negative impact on the long term UK economy as those Remain supporters suggest and their jobs are lost.
But over the last few hours I am beginning to ask myself … is this new ‘News’?
Yes, the result is certainly a surprise, and I for one thought it would be close and fall in favour of ‘Remain’. However, the Global markets have known about this vote since February 20th when David Cameron announced the EU referendum. If the fund managers are as clever as they suggest, surely they would have models of ‘probability’ working through the chances of Remain or Exit to see if there was a buying or selling opportunity. Markets have traded over this period knowing we may leave and a 50:50 decision is not necessarily uncertainty.
As Fund manager Neil Woodford points out, that on February 20, the day Cameron announced the EU referendum would take place, the FTSE 100 was at 5950. Despite today’s massive falls, it is still above this level this morning. He says: ‘Markets are clearly shocked by the decision but, in our view, it is not as negative a development as the market’s initial reaction appears to imply.’
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Today he reiterated his opinion: ‘In the longer term, it is my view that the trajectory of the UK economy, and more importantly the world economy, will not be influenced significantly by today’s outcome.’
He added ‘that there will be challenges in the near-term’.
‘We now face a period of uncertainty as the exact terms of Britain’s exit from Europe are negotiated,’ he says.
‘Financial markets loathe uncertainty as amply demonstrated by this morning’s reaction across all asset classes.’
That said, this Stock Market adjustment is no different to all the other uncertainty we have experienced over decades and in recent periods from the Dot com crash, 9/11 the Banking crisis and now the UK exit. There are opportunities in all markets and always will be.
You have to remember that when you invest, you invest for the longer term and over time when you look back at the charts, no doubt this will be just another downward kink in a long term upwardly moving index.