Unsurprisingly the stock markets and currency markets have been volatile in the two weeks since the Brexit vote. Domestic politics has been equally volatile too.
I’m sure the ﬁnancial markets and politics will continue to endure a bumpy ride for some time yet as neither react well to uncertainty. Interest rates are expected to be cut but with Sterling falling, imports are more expensive. This could fuel inﬂation which could require higher interest rates to dampen this. But exports are cheaper so won’t this be good for UK plc?
The global economy has a lot of moving parts and because of this I am deeply cynical of economic predictions because trying to accurately predict what might happen next is clearly impossible. Nearly all economic forecasts are wrong and continually revised and I urge you to be equally cynical too.
Looking back to the day of the EU referendum, the FTSE100 closed at 6,338 and, amid market expectations of staying in the EU, made a lot of headlines the following day by dropping 7% at one point. However, the media rarely mentioned that the FTSE100 recovered well later that day and actually ended the week of the referendum around 2% higher than it started.
Remember: the media are paid to grab your attention and to entertain you. They are certainly not paid to solve your ﬁnancial concerns. Again, be cynical!
The FTSE100 does not really reﬂect UK plc and it has continued to rise (to just over 6,500 as I write) because roughly 80% of its earnings are overseas. When these earnings are converted back into Sterling they are worth more, hence the aggregate price rise.
The well diversiﬁed portfolios we recommend have performed well as the majority of their equities are overseas, costs are low and we have not tried to second guess what might have happened.
A number of commercial property funds have made the news in recent days as they have suspended withdrawals. This also happened in 2008-09 and reinforces our strong preference for funds that hold shares in property companies rather than physical bricks and mortar. You don’t realise how important daily liquidity is until it’s taken away from you!
It is worth revisiting why you are investing in the ﬁrst place. What are you trying to achieve? If that hasn’t changed and if your ﬁnancial goals haven’t changed, the academic research behind successful investing hasn’t changed either, so my conclusion would be to stay invested and let global capitalism work for you, don’t try to ﬁght against it.
If you are concerned about what Brexit means for your ﬁnances then please get in touch.
Otherwise we stand by our previous comments that this is not the end of the world; capitalism will live on, it is more likely to be the evolution and kick start Europe and the EU need for a better future.
Live long and prosper
Philip Challinor Director