UK votes Leave. What next?

LHW has been watching this issue very closely during the past month as we were very conscious of how this type of development can make investors nervous. Our expectation was for a narrow win for the Remain side and it is fair to say that the final result has come as a real shock for almost every neutral observer. The level of disinformation and indeed outright abuse from both sides made for a very nasty debate and this has clearly polarised UK public opinion.

The negative reaction across global stock markets today has been immediate and has been exaggerated by the fact that these markets had positioned themselves for a vote to Remain in the EU. The ISEQ here had gained 7% since the beginning of June and this would have contributed significantly to this morning’s 10% fall.

In our view, there are unlikely to be any significant changes next week, next month or even for the remainder of 2016. The EU rules provide for a 2 year period during which the terms on which Britain will interact with the other EU countries can be settled but it may take considerably longer than this for all of the required changes to be implemented. This will be a massive project without any real precedent and there is little point in trying to second-guess how it will evolve at this very early stage.

It is in the interests of both the EU and the UK to maintain strong economic relationships. Of course the loss of the UK as a member country is significant but it makes absolutely no sense for the EU authorities to seek to punish the UK severely – so as to discourage the other members with significant nationalist agitators. It would be far more productive for the EU to take a critical look at itself and to acknowledge that some of the concerns raised during the UK referendum campaign are legitimate. It would have been preferable for them to have done this before any referendum took place but the decision has now been made.

The challenge now for this country is to work very hard to maintain the excellent relationship which we have with the UK. It is equally important that we push for reform within the EU so that it can become more relevant for the citizens of its’ member countries.

For any investors in the market, a 10% fall represents a significant correction but it is far from unusual. A similar correction took place in early 2016 well before the UK referendum began to dominate the news. A well- diversified investment strategy remains the most effective way to invest for medium-long term growth. There will always be market risks out there – if there were no such risks there would be no returns.