Result of the EU referendum

After yesterday’s vote to leave the EU, you may be interested in our early assessment of the investment implications.  We consider that our balanced portfolios are already well positioned for this outcome, reflecting the increasingly cautious stance that we took on equity markets last year.

Balanced portfolios have a significant allocation to overseas assets and bonds, which have benefited considerably from the strength of the US dollar against the pound, as also from the strength of bond markets.

There could now be some residual impact for the euro were global investors to anticipate a more immediate threat of fragmentation affecting the eurozone as a whole.  Meantime, UK-based companies can expect to trade overseas much as before, although on rather more competitive currency terms.  Britain’s eventual exit may in any event take a considerable time to achieve.

More enduring impacts for Britain and Europe cannot, at this stage, be reliably discerned.  The UK’s economic position is not strong but is far from desperate.  While the UK’s exit may pull together those countries remaining in the European project, any potential fragmentation of the European bloc would presumably occur piecemeal, rather than by a sudden implosion.

In a wider context, trends already evidenced in the world economy will remain the dominant feature for global market prices.  In this regard, the recent strength of bond prices (and falling yields) imply that individual consumers – the engine of world growth – are becoming increasingly cautious about spending.  Economic recession, therefore, is far from a remote possibility.

In these circumstances, we reaffirm the investment merits of balance and sensible diversification across asset classes and currencies.  These will be vital and helpful components underpinning our investment approach, as indeed they have been over many years.

Please do contact us if you have any questions about what we have said.

24 June 2016

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