As the world grapples with the ramifications of the historic and unexpected vote by the UK to leave the EU (Brexit), the investment team at VISIS have been analysing the potential impacts on investment markets, asset allocations and investment portfolios. Following this analysis and after consultation with a range of global investment professionals our initial views are as follows:
Whilst investment markets fell sharply on Friday following the shock referendum result, these falls were largely the reversal of gains made in recent weeks as markets had been strengthening in anticipation of the “Bremain” vote prevailing. With continued uncertainty regarding the true economic impacts of the Brexit vote, this will likely result in some short term market volatility in the coming weeks, particularly in the directly impacted markets in the UK and Europe. In Australia, we expect to see some market resilience as some of our largest trading partners, in particular China, may, in fact, be significant beneficiaries of the Brexit.
Investment allocations to Europe and the UK currently represent less than 10% of most client portfolios and we expect that this “underweight” allocation will remain in the near term. Fundamentally we don’t see the Brexit vote having a long term impact on asset valuations and believe that our current tactical asset allocation with “overweight” exposure to US Equities will serve investors well.
In times such as these many investors attempt to speculate on specific investments that will benefit or suffer in light of this type of event. On Friday we saw Resources and Financial stocks suffer the most while gold and defensive stocks were the best performers. Moving forward we will continue to adhere to our bespoke approach to portfolio construction and ensure that investment portfolios are best positioned for long term growth and strong dividend income. If anything, a short term fall in markets presents opportunities to deploy some cash to purchase investments at attractive valuations.
In summary, there is no doubt that the “Brexit” vote has created renewed instability and uncertainty in Europe however we are confident that the lawmakers will take the necessary steps to either smoothly facilitate the “Brexit” or seek a suitable alternative.
Domestically we anticipate that the “Brexit” impact will likely be exaggerated in the media this week as the Government seeks re-election on their economic management credentials. We would also not be surprised if the RBA moved to cut interest rates again at their July meeting next week to provide some positive stimulus for the economy.
If you would like to discuss these recent events or any other financial matter then as always don’t hesitate to contact your VPW Adviser.