June 24, 2016
SUBJECT: Britain Votes to Leave European Union
To our clients:
Yesterday, Britain voted to leave the EU (Brexit). There is a lot of news and commentary out there, so we felt it prudent to send out an executive summary on our thoughts and how it relates to your portfolios.
It is known that markets do not like uncertainty. This year has had its fair share of unknowns, and no doubt the Brexit has added to it. Markets anticipated Britain to remain in the EU, so when news came that voters chose to depart the EU, it was a total surprise.
We have been doing research on what this means, and we think it is important to realize that nothing will happen overnight. The process of leaving the EU will take Britain at least two years, which means markets will digest this as we learn more. Here are some relevant bullet points:
- Despite the initial shock of uncertainty, the economic consequences are expected to be localized in the UK.
- Britain is a member of the EU, but does not use the Euro Currency. This will make for an easier transition since they use the Pound Sterling.
- It is almost certain Britain will lower interest rates to support their economy.
- The UK only represents 4% of global GDP.
- The British departure should have a minimal effect on the U.S. which is still expected to have 2.5% growth for the second half of this year.
- The U.S. Federal Reserve will be forced to keep interest rates low for the time being which should help stimulate our economy.
- Times like this remind us that sticking with a diversified asset allocation is crucial. While equity markets are down today; gold, utilities and bonds are up. We are continuing to monitor the situation and will make adjustments as further information comes to light. As always, please contact us with any questions you might have.
Bijan Golkar, CFP®