IRFT Newswire (London)
What is the effect of Britain’s exit from the European Union? Father Joseph Varghese try to fill some dots of the left out lines. Definitely, it has social, political and economic impact on the world population. The refugees couldn’t find safe sanctuary inside the borders of Britain. The British society may tend to act more a reserved society. The Europe may further alienated from Britain. These are common side effects on these decisions .
Father Joseph Varghese, Executive Director of IRFT give an analysis on the matter.
The referendum on whether Britain should leave the European Union (E.U.)—has finally taken place. And the “yes” side has won: Britain will be the first nation to ever leave the E.U. Here’s our take on the potential implications for the markets and investment portfolios.
Britain is the 5th largest economy in the world. As a member of the European Union, Britain has been able to trade openly with other member countries and operate as one of the union’s financial services hubs. Several of Britain’s political parties have been calling for a vote on E.U. membership for some time. This particular referendum was initiated when Prime Minister David Cameron promised to hold a vote on E.U. membership if he won the 2015 general election, which he did.
Those who voted to leave the E.U. claim that Britain will be able to negotiate better trade deals and have stronger control over its borders. Those who voted to stay believe that leaving the E.U. will result in years of uncertainty and significant negative economic consequences.
The true economic impact of Brexit will depend on what type of exit settlement is reached by Britain and the E.U. In particular, will Britain retain access to the E.U. for trade while remaining the center of Europe’s financial services industry? Answers to questions like these (and the impact to economic growth in the U.K. and the remaining countries in the E.U.) will not be found anytime soon, as it will take several years for Britain to actually leave. One deep-seated fear is that the U.K.’s departure will cause other countries to follow suit, resulting in economic chaos and pronounced uncertainty.
As is the case with any unprecedented geopolitical event, market reaction is difficult to predict. However, for the immediate future:
• Market volatility is expected to increase with downward pressure likely in the European currency and equity markets.
• Higher-risk assets around the world, such as high-yield bonds and emerging market stocks, could experience selling pressure—mostly due to the expectation that investors might reduce their most volatile positions.
• European equities, especially those in the U.K. (which make up approximately 30% of popular European indexes), are expected to trade weaker. Financial services stocks could be among those hardest hit.
• Safe-haven assets, such as U.S. Treasuries and sovereign bonds from Germany, Switzerland, and certain other developed countries, are expected to rally, as uncertainty is likely to drive investors, in the short term, to relatively low risk assets.
While many diversified portfolios will have some exposure to areas of the market potentially negatively impacted by Brexit, they should also have allocations to assets that stand to benefit. Regardless, depending on the specific portfolio, there may be volatility in certain asset classes.
As always, maintaining a long-term point of view is critical to weathering current market volatility. This can be made easier by owning a broadly diversified portfolio aligned with one’s goals and risk tolerance. Avoid the immediate emotional temptation to attempt to time the market. It’s quite possible, in fact, that markets may rebound over the coming days. Even more importantly, it’s far too early to make sense of the longer-term implications of this historic event, which is key to understanding how financial markets will be impacted over time.
The Brexit has given a boost to Trump’s presidential ambition. The Trumps campaign built on stronger boarders, fair trade deals, improvement of local economy. The same propoganda played a crucial role Britian’s exit from the European Union. In the coming weeks and months, we can see how Trump capitalize this new development in his favor. It will played against the democratic parties slogan of social equality, worldly brotherhood and larger economy.