Reasons to be Cheerful: The Positive Side of Brexit
Following the fallout from the Referendum and the uncertainty it has created we anticipate you may seek a professional opinion on what the future may hold. We believe, whatever the outcome, at times like these you need to look for the positives. We have therefore looked beyond the immediate market shock of the Brexit vote and we have weighed up what the positive outcomes might be and come up six points you can highlight with your clients. In the words of the Ian Dury song, we have found some reasons to be cheerful.
1: It will take a minimum of two years to organise our exit from the EU, though we realistically expect it will take considerably longer. In the meantime trade will continue – with the French wanting us to drink their wine and Germans wanting us to buy their cars, and UK businesses will still want to export to Europe. It will be in everyone’s best interests to negotiate good trade agreements.
2: We live in a global economy and typically your client portfolios are well diversified. The UK economy accounts for less than 4% of global GDP so even a very sharp fall in UK growth has no material impact globally. To put it in perspective China, growing at 6% to 7% per year, is adding an economy the size of the UK to the global economy every four to five years.
3: UK banks are very well capitalised and have much greater capacity to absorb shocks than during the global financial crisis in 2007 to 2008. Both the Bank of England and the European Central Bank have made it clear they are ready, willing and able to support markets with ample liquidity and will maintain a highly accommodating monetary policy with the potential for more quantitative easing.
4: Interest rates in the UK will now stay close to zero for as far ahead as we could realistically forecast. The same applies in Europe. It is not out the question that the Bank of England will cut rates from the current levels of 0.5%.
5: The immediate falls in sterling, if sustained, would help the UK economy by making UK exports more competitive.
6: Uncertainty in the market also has a positive aspect by creating longer term buying opportunities as some assets fall in value.
The UK has a strong, open and resilient economy and markets will settle down to the new reality after a short period of adjustment. We believe now is the time for a considered, measured approach, maintaining broad diversification in portfolios and we expect our fund managers to use short-term volatility as an opportunity to buy assets at attractive valuations.
Innes Reid’s investment processes are tried and tested and we continue to do everything in our power to help our clients to navigate these market conditions. If you have any clients who are looking for reassurance or who are concerned that they are not best positioned, please do not hesitate to call upon Innes Reid to assist.
