June 24th, 2016
Brexit vote is to leave the European Union
Yesterday, the people of Britain voted for a British exit, or Brexit, from the European Union (EU) by a close margin (51.8% leave and 48.2% stay). The global equity markets rallied over the last week in anticipation of a vote to stay in the EU. Prices are now readjusting to the levels of just a few weeks ago. This should be a short-term adjustment much like the fiscal cliff of a few years ago.
In practical terms, the official exiting could take two years. In some ways, the UK already had “one foot out the door,” with their own currency and other trade exceptions. The UK is the world’s fifth largest economy, with the majority of their trade taking place within the EU. Therefore, we can expect a good deal of negotiations to minimize the economic impacts of their departure. It is in the best interests of both parties to minimize disruptions.
A well-diversified portfolio is the best defense for the temporary volatility we inevitably experience from time to time. The world’s economy is large enough to handle this, and Brexit should not affect long-term growth prospects.