INVESTMENT DIRECTOR, ERIC WOODWARD’S VIEWS ON EU REFERENDUM OUTCOME
Whatever your views on BREXIT, the politicians have delivered us all a period of uncertainty and the implications of this vote will be far reaching and long lasting.
Short term we will see an inevitable short-term reaction to this shock with the weakening of Sterling and a fall in markets. We await the response of the USA when they trade later today.
Of course, we expect to see a lot of short-term volatility around this event but the actual implication of the vote and exiting will take several years to implement. This may also lead eventually to a break-up of the E.U. although the political will is very strong to keep it. This isn’t just a U.K. issue, its European wide.
There will probably be others who follow suit. A weaker currency will give a boost to our export side and could also trigger some bids in the U.K. as suddenly they are a lot cheaper to acquire. Imports, however, will become more expensive if the exchange rates prevail. It’s not all bad news as companies with large overseas earnings will see a short term boost to profits from the earnings translation. Dollar earners will be much more attractive now.
Although we are leaving eventually, the base case for our European holdings has not changed too much.
Though markets will react negatively over the next few days, there is an offsetting gain in our overseas holdings from the short-term appreciation of the base currency against Sterling.
We have some exposure to the USA market with some of our holdings and with Sterling likely to trade around $1.35, initially we may well look to capitalise that move and sell the holdings so we have some cash back in the portfolios. We do not expect to see the Pound that low for a very prolonged period. Interest rates will now not increase materially for maybe some years now.
There will be much analysis in the media of this vote and its longer term implications.
We now know what we have to deal with in terms of the decision and will assess the market moves over the coming weeks to see if there will be different opportunities.
We do not see the need for major short-term changes, although there will be some repositioning needed to reflect the changed outlook. We will, therefore, be back in touch shortly with our follow up thoughts as to how we might alter some of our long term holdings.