The impact of the referendum and Brexit is starting to take effect, yet it is still not a doomsday scenario.
Having seen a clear result in the referendum, it is virtually impossible that the UK remain within the EU, despite various media headlines about challenges.
As a direct result many financial institutions and investors have started to align themselves to make money out of the upcoming changes, despite the actual leaving date not being for at least a couple of years.
The most immediate effect of the vote on markets was our currency exchange rates. Sterling swiftly lost between 10% and 15% of its value against the likes of the US Dollar and the Euro. This may seem bad news and many people are surprised how such a fall in currency triggered a leap in the FTSE 100 stock market index.
The drop in exchange rates isn’t good news for holiday makers travelling overseas. Equally the change in exchange rates could mean imported items like gadgets such as iPads suddenly increase in cost.
However, the inverse is that for tourists coming into the UK, we are now a cheaper destination. Also our exported goods are suddenly cheaper. It also means that for UK companies which earn their profits overseas, have suddenly seen their profits leap between 10% and 15% upwards.
As a result, whilst some of our smaller UK firms have been impacted by the change in currency, many of the larger FTSE 100 firms have risen significantly in value.
At the same time large investors have been uncertain about what the demand will be for commercial property in the UK. In order to prevent a panic sell of investments, the larger property funds have suspended trading.
This suspension was almost inevitable once a few large investors start expressing interest in reducing the investment holdings and will ultimately filter through to most property funds.
It is not a situation for panic. The suspended property funds remain invested and continue to receive regular income in terms of rent. Equally most pundits would agree that, long term, property is not in the same situation as 2007 and 2008. Over time this sector will stabilize and return to a steady and reasonably predictable asset class.
For investors, the situation is fairly simple. Existing holdings in property will remain as they are and hopefully receiving steady yield (income). Any new investments or rebalancing will simply exclude property temporarily until the suspensions are lifted.
Most importantly, we do not share the pessimistic views about the UK’s outlook as Brexit takes form. Change is afoot, yet at the same time change brings opportunity.
As always the key to successful investing has to be diversity. A balanced portfolio avoiding being overweight in any asset will allow people to ride out any blips and or temporary fund suspensions.
We will continue to monitor the situation closely and if appropriate will let our clients know about any immediate actions required.
In the meantime, as always, please get in touch with Platinum if you would like to discuss your investment strategy or if you have any concerns.