The New Sick Man Of Europe – How To Invest After Brexit This article will examine how you should manage this sick market.
By AJ Agrawal Edited by Dan Bova
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Brexit shook the foundations of Europe. Britain leaving the European Union (EU) shocked individuals and businesses to their core. Businesses are thinking of changing their minds on increasing their budgets. Brands monitoring the reputation of Britain are wondering where this leaves Sterling.
There's no doubt that this once stable market is now a sick market. But that doesn't mean you have to abandon it entirely. The victory of the Leave campaign in the UK EU referendum may have happened, but markets are already bouncing back.
This article will examine how you should manage this sick market.
The Market Dip
To begin with, you have to examine the market dip. When the result first became apparent, the FTSE 100 dropped by 8 per cent. Similar trends were seen in Asian, European, and US markets. In short, the global economy went into significant decline. This may make you think that it's time to be conservative.
You would be wrong because most of this ground was recovered in a matter of days. It's true that the market is still lagging behind what it was before the referendum, but stability in the immediate aftermath has managed to calm markets, at least for now.
Should you be aware of a market dip later, though?
This will happen, but it won't be until much later. Once the UK triggers Article 50, the formal two-year process to leave the EU will begin. When this is triggered and when the UK eventually leaves the EU the markets will be shaken again. Until that time, things should remain relatively stable.
What about the Sterling?
While the market recovered, the currency hasn't. Some analysts state the pound could drop to $1.20 or lower by the end of 2016. This is a big contrast to the heights of $1.50 that it hit when investors started to bet on a result to Remain. Currency speculators can make a lot of money from this.
With most analysts predicting the decline of the currency in the short to medium-term, now is the time to convert some of your capital into dollars. This will help to protect the value of your money should the currency drop further. Ideally, this is something you should have done before the vote to act as a safety net.
Until the situation stabilizes for the long-term, both Sterling and the Euro will drop in value. The way to manage wealth in this sick market is not to use its currency.
Should You Invest in UK Companies?
This is a tricky question to answer because UK companies remain among the most powerful in the world. London is still the financial heart of the global economy. Yes, people in the city are worried, but that doesn't mean you should start pulling out just yet.
The key question to answer is whether London will still be able to enter the single European market? Areas of Europe like Estonia could become new business hubs.
That's a question that we won't get an answer to for at least a year or two. For now, it's worth continuing to invest in UK companies. If you invest long-term, though, expect some volatility during negotiations for the UK to leave the EU.
Is it Time to Turn to Gold?
As always, when currency declines gold goes up in value. The same trend was seen here today. The difference is that gold didn't hit the record highs that it did in the immediate aftermath of the great financial crash at the end of the last decade. In fact, gold markets didn't move as dramatically as they have in the past.
Part of the reason for this is that the result didn't come as a total shock. Polls were always close, even if most people still thought the UK wouldn't choose to leave.
It should also be said that currency was protected by the stimulus of the Bank of England, and the deft handling of the markets by government forces.
What Lies Ahead?
Despite the fact that the UK market has a high temperature and is at serious risk of fever, this market has a bright future ahead of it. Should the government be able to secure single market access, the UK will ensure its future financial prosperity.
Furthermore, many countries from around the world have already made it clear that they wish to install trade deals with the UK. Companies building their brands will see this as a positive sign and a reason to continue to have faith in the UK markets.
Conclusion
The 51.8 per cent vote for the Leave campaign is no reason to panic and no reason to start moving your wealth. Just remain vigilant and ensure that you are watching the markets carefully over the next two years.
