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Spare a thought for the Brits. Between Friday and Monday they lost their prime minister, most of the shadow cabinet, their triple A rating – and their national football manager, after being knocked out of Euro 2016 by Iceland. But don’t spare too much of a thought, as their unexpected decision to leave the European Union has left all Australian investors with some thinking to do.
As if China’s slowdown, the end of the commodities boom, questions about the outlook for US interest rates and endless uncertainty about the future of the euro weren’t enough, now we have to digest Brexit too. It’s not, in itself, cataclysmic for Australia; local exposure to British assets tends to be pretty small. But it is yet another source of volatility and uncertainty in a world that had plenty of it already.
One problem is that, even after the vote, there are plenty of unknowns. Once Article 50 – the formal notification of exit – is invoked, that’s just the start of at two-year countdown for exit, and it hasn’t even been triggered yet; it won’t be until there is a new Prime Minister, which will take months, and even then it might not be immediate. There might be a general election to come, and possibly another referendum; there’s even the possibility that the EU might offer improved terms and so stop the Brexit happening at all. Either way, negotiations will take years, and all of this creates more and more uncertainty for markets to deal with.
So what do investors need to think about? Should they be repositioning? Seeking value in troubled assets? Or battening down the hatches and retreating to safety?
Here are some themes to consider as you navigate an uncertain world.
