What does the Brexit really mean?

It was quite a ride last night in Britain, as voters went to the polls to decide on whether to remain in the European Union (EU). Early indications of Remain turned to Leave as district results came in. The Leave vote prompted Prime Minister David Cameron to resign. Market volatility and related uncertainty has been huge today – a Wall Street Journal headline noted “Investors Shaken” given the fallout. As of mid-day, most U.S. markets were down 3% to 4%, while the Stoxx Europe 600 was down over 7% and the Nikkei was down nearly 8%. Further volatility is expected.

CBIS’ Take: This is a definitely a negative for the U.K. But despite today’s market downturn, there will likely be only minor spillover to the global economy, unless the whole world decides to put up walls and be their own island. How many more walls will be built (or put another way, will other EU members exit)? One thing is almost certain, the U.S. Federal Reserve is on hold, in terms of any further rate hikes – prices today reflect that fact and more. We will watch how the central banking system reacts, as they need to reassure the markets. We will also keep an eye on how the British Parliament responds, as well as the rest of the EU. Monetary policies cannot cure structural and fiscal problems, but are politicians up to the task?

It is important to note that this will take years to play out and have the U.K. actually leave the EU. This is just the start of the process. As a result, we believe there is no reason to change your asset allocations, but we will remain diligent in looking for rebalancing opportunities. CBIS will continue to support our participants by maintaining a prudent, long-term perspective.

We will continue monitoring the situation very closely and will keep everyone apprised of any major developments. And if you have any questions, please contact your Portfolio Specialist.