Yesterday, the United Kingdom (U.K.) decided to leave the European Union (EU). The vote to exit, termed “Brexit”, came as a bit of a shock – as recent as yesterday afternoon it seemed the U.K. would remain in the EU, everything continuing as normal.
THE IMPLICATIONS
At this point, only the referendum has passed – breaking from the EU would be a long process that will take the U.K. several years. Though the long reaching ramifications of the U.K. leaving the EU are unknown, it is widely believed that yesterday’s results will certainly be a short-term negative for the British economy, with possible negative ramifications for all of Europe.
The response to all of this from Europe as a whole is what will be most important in determining what happens. And for countries on the periphery like Italy, Spain and Germany, they will all certainly be watching to see what happens to the U.K. post-Brexit.
This morning, European markets are down sharply, as were Asian markets last night. The U.S. markets are down over 2.5%, but have paired overnight losses. A weaker Euro and a stronger U.S. Dollar will certainly be the drivers of volatility in the markets over the next few days.
THE RIGHT RESPONSE TO GLOBAL RISK
Brexit is one event in a long list of geopolitical issues that we have been watching for quite a while. It simply underpins the need for risk management in your investment strategy. When global risk is high, it is important to position investments to weather the unknown. We’re firm in our belief that implementing prudent risk management is key to any successful investment strategy, precisely for times like these.
