Earlier today, I spoke exclusively to Ben Kumar of Seven Investment Management for the next episode of Informed Choice Radio.
Ben is a CFA Charterholder and Investment Manager at Seven Investment Management.
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Here’s what he had to say about the referendum decision and its impact on investment markets.
The market reaction on day one and day two of the aftermath of the referendum was pretty much as expected.
Markets fell, so the equity markets fell, sterling fell, and the bonds markets rallied.
Now, sitting here almost a week later, the FTSE 100 has regained exactly the same level as it was on the first day when everyone expected an in-vote.
While the immediate reaction seemed to take all the negatives of a leave-vote, now the markets are behaving in a little bit more of a considered manner.
Whether this is due to the negotiations not yet having started – and indeed no negotiating party even having been agreed – or whether it’s to do with the fact that the world is not broken and Brexit is unlikely to break and shake the economic recovery, (it’s an unclear which of those it is), the market reaction has been pretty benign.
There’s a possibility that the equity markets in Europe, and the FTSE 100 in particular, are being a little bit too blasé about the outcome of the referendum.
We still have a very complicated period of negotiation to go through, and Europe is not without its own internal political struggles outside of the UK’s influence.
There’s a possibility, nay, a probability, that we’ll see a lot of volatility, a lot of reactions to political statements and to company earnings and to various events, but I think in the main, equity markets are likely to trade sideways with gusto.
In the bond markets, it’s a really interesting situation with UK 10-year bonds now yielding less than 1%.
These levels are obviously extremely extended, and many people have been speculating for some time that there will be a bounce back, that yields will rise.
Having said that, in an uncertain environment, people prefer to look to the safe havens.
Bond markets are not giving you a particularly decent level of return, could do well at protecting your capital while this uncertainty is resolved.
The decision to leave the EU means that the path to economic success for the UK is a different one than had been expected even a year ago.
I don’t think that necessarily means it’s a worse path.
It will be a little bit more complicated and require negotiation, but the fundamental fact is that the UK is a dynamic, literate, well-educated English-speaking economy that has a proud history of innovation and adjusting to circumstances, and I think that will persist.
Five years down the line, I think the UK economy will likely be thriving.
It may look a little bit different than it does now, maybe less emphasis on financial services being sold into Europe, and maybe more emphasis on other goods or other services being sold around the world.
I don’t think this is a deathblow to the UK economy.
The UK can survive even a mild recession due to the uncertainty around its future.
I think in general though, we’ve proven again and again and again that the United Kingdom has the ability to adjust, adapt, to move forward quickly.
The only thing that could really cement this, is making sure that the negotiations with Europe are conducted on a positive basis, cleared up as quickly as possible so that small businesses know where they stand, and can get on with doing what they do best, which is selling their products.
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