Jeffrey Lipton – Barbados: How Brexit may affect your portfolio

Now that the initial shock of the Brexit has worn off and the dust has somewhat settled, investors around the globe, especially those heavily invested in England and the European Union, are evaluating the current state of their portfolio.

The week after the English referendum was marked by turbulent world markets left reeling from the implications of the unprecedented vote. The popular refrain echoed by financial analysts was, ‘the markets don’t like uncertainty’, and while this is basically true, some of the greatest fortunes made from the stock market have come as a result of market uncertainty.

Chris Konstantinos, director of international portfolio management at River Front Investment Group, said the market impact will be, “negative everywhere, but acutely felt in the U.K., where the bulk of the economic damage and uncertainty will be felt.”

The historic Brexit, which marks the first time a country has left the E.U., is viewed as the worse-case scenario for global financial markets, especially because most had speculated that the British would vote to stay.  The startling vote immediately sent the British Pound plummeting, reaching a low not seen in recent years.

Billionaire investor George Soros believes the Pound may continue to drop by as much as 15 to 20 percent. He also expects U.K.-based stocks to incur sizable declines, especially banks and other financial shares.

The day following the vote, the Pound lost as much as 11 percent, while the Euro lost roughly 2 percent of its value, which reflects the belief that even partially severed trade ties with the rest of the continent will crimp Britain’s growth.

The growth impact is expected to ripple across the globe. “You get a rabbit-in-the-headlights phenomenon where businesses don’t want to make new decisions, or new investments, because they are uncertain about the future,” said John Van Reenen, director of the Centre for Economic Performance at the London School of Economics. “The immediate effect will be a lowering of investment activity, a lowering of hiring and an immediate slowdown of growth.”

In the immediate aftermath of the vote, I had a number of people in Barbados asking me, “Jeffrey Lipton, what are the implications?”

Currently, the aftereffects of Brexit are moving the asset risk category, including stocks, into the bearish realm, this following a steep stock decline in Asia. 

Despite Brexit creating volatility, it is expected to spur on travel and tourism, as flights to England have come down and price and purchasing British currency has become more affordable.

It is also a good time for international buyers interested in purchasing British real estate. The devalued British pound, combined with general uncertainty in London and the UK, is being viewed as a buying opportunity for foreigners. “There is clearly some bargain-hunting going on among people looking to take advantage of the currency change,” said Fionnuala Earley, residential research director at Hamptons International.

On the American side of the pond, U.S. mortgage rates are expected to move even lower, despite reaching a three year low earlier this year.  “That’s helpful for anyone in the market for a home purchase or contemplating a mortgage refinancing,” notes Mark Hamrick, senior economic analyst at Bankrate.com.

It’s still too early to determine the long term impact of the Brexit vote.  However, depending on your asset and risk level, right now there are bargains to be had.

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