Jeffrey Lipton, Barbados: Why some investors haven’t felt the sting of the Brexit … yet

Now that global markets around the world have regained their sanity following the post-Brexit volatility, I thought it would be pertinent to revisit the impact the Brexit vote will have on markets and portfolios in the coming months.

While the initial blow of the British vote to leave the EU has worn off, the long-term ramifications are still uncertain, and as we all have heard repeatedly, the markets hate uncertainty. With that being said, the market volatility brought on by the unprecedented vote has been favourable for a certain asset classes and stocks.

Gold and Silver

The rising value of gold futures has been the talk of many financial sites, however the real story is the performance and growth of silver. The precious metal has seen the greatest increase in value post-Brexit and as such is being touted as the next big thing.

As economist Simona Gambarni pointed out, historically, silver usually outperforms gold, and conversely also devalues more rapidly than gold.  “Although an attractive asset, silver tends to be more volatile than gold, and fluctuates a lot more than other precious metals,” she said.

Gambarini believes silver will continue to outperform gold because the U.S. and Chinese economies will perform better than expected, especially post-Brexit.

Even though we are only a handful of weeks out of the controversial vote, it’s important to put the brief global market volatility in perspective with market activity over the last year. For the most part U.S. stocks have recovered a majority of their post-Brexit losses. In comparison to the market corrections seen in August 2015 and earlier this year, the post-Brexit reaction has been quite mild and minor. 

“In the previous two market plunges, the S&P 500 saw “death cross” patterns, meaning its 50-day moving average tumbled below the 200-day moving average,” Douglas Porter, chief economist at BMO said.

The “death cross” Porter refers to indicates a shift in momentum and signals the potential for a bear market.

In the week or so immediately following Brexit, markets began to recover the losses felt directly after the announcement. One stock that was performing well before the vote that has now puttered out is oil. Despite crude oil prices being up approximately 75 percent from earlier this year, the adverse effects of the Brexit uncertainty has cost crude around 4 percent since the referendum as investors have fled risky assets such as commodities.

Although there seems to be a universal calming, analysts remind investors that waters are often calmest before a storm, as evidenced by the British vote’s effect on oil prices.

“Brexit could have a cascading effect if other economies get caught in the turmoil—that inevitably affects oil demand,” said Miswin Mahesh, an oil analyst at Barclays PLC.

As Mahesh notes, the U.K may only account for less than 2 percent of the world’s oil demand.  However, Europe’s total share, which is impacted by Brexit, is more than a 10 percent of global demand.

What is an investor to do Jeffrey Lipton?

I say hold steady. While the initial, batten down the hatches reaction has now passed, there is still too much fluctuation and uncertainty to fully gauge where the markets will be in 6 months or a year. 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s