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Britain will on 23 June go to the ballot box in a referendum to decide whether they will stay in or leave the European Union (EU). Since it joined the EU in 1973, a lot has changed for the United Kingdom. There are now potentially bigger issues for the British economy than leaving the EU.
While the decision to leave the EU is a political, social and cultural one, it will also have an economic impact. Some of the recent sharemarket volatility can be linked to investor concern around the potentially negative impacts should Britain vote to leave the EU.
The range of predicted outcomes has been wide, from a negative 10 per cent Gross Domestic Product (GDP) impact to a positive 10 per cent GDP impact. The actual outcome cannot be predicted with certainty before the event.
A detailed report released last year by Capital Economics provides a more balanced assessment of the risks the United Kingdom (UK), and to a lesser extent the world, could face following a vote to leave the EU.
In its report, Capital Economics said the overall economic outcome of the UK leaving the EU is uncertain. It contends that a bigger issue facing the UK is productivity and business investment, as the pros and cons of leaving the EU would cancel each other out.
What are the potential outcomes of a leave vote?
According to the Capital Economics report, a leave vote could:
What does it mean for Australian investors?
Considering the above, the current Australian share market volatility being attributed to the UK leaving the EU this week seems somewhat a knee-jerk reaction.
Long term investors should remain focused on the long term cash flows provided by their portfolio, as well as the fundamentals of the companies in which they hold shares. Short term issues such as the Brexit, our election, the US election and other geopolitical events will always provide noise to the markets. The key is to ignore the irrelevant noise and remain focused on the long term cash flows that can be provided by quality investments.
As always, the advisers at Hewison Private Wealth remain available to discuss your concerns and continue to rebalance portfolios as required to achieve each client’s objectives.
The information provided above is general information only and does not take into account your personal circumstances. Individuals should seek specialised advice from a qualified financial adviser prior to implementing a strategy based on the above information. Please contact Hewison Private Wealth for more information.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.