Rising Tide Blog

There’s no doubt that the ‘Brexit’ has had a massive impact on the sharemarket. When the result was announced last Friday the British pound plummeted to lowest it has been since 1985. Any large political event effects investor confidence, but how is the ‘Brexit’ going to financially impact average Australians?Our Financial Advisors will help in all matters.

The truth is that there is no way to totally predict what is going to happen. But what we do know now is this:

The Good

• If you’ve ever wanted to take a trip to the UK, now is the time. With the pound sitting so low you’re going to get more out of your Australian dollars than ever before.
• It could become easier for skilled Australians to work and study in the UK (yet to be confirmed), with migration policies likely to become similar to the Australian ‘points’ system.
• The value of the Aussie dollar isn’t unlikely to be affected long term.

The Bad

• For now, travel to the United States could get more expensive as the ‘Brexit’ vote means a short-term drop for the Aussie dollar against the Greenback.  Be patient though, as it’s unlikely that this will last for long.
• Australia’s trade relationship with the UK (worth $10b annually) could be affected by the uncertainty – only time will reveal to what extent.
• Australia’s relationship with the EU is heavily based on our long-term partnership with the UK so this will need to be revisited (which could in fact end up being a positive rather than a negative).
• Tariffs received by Aussie exporters sending goods across to the EU via UK are likely to be disrupted or altered in some way.
• There are some long-term concerns for the future of export from Australia to the UK (particularly in the industrial and manufacturing sectors). It is reasonable to expect some sort of disruption that will likely be caused by any recessions that occur in the UK as a result of the vote.

The Ugly

• The vote isn’t legally binding, but if the UK does go ahead and exit the EU it will take two years for this to actually happen. It is reasonable to expect some financial uncertainty in the sharemarket during this time.
• A whopping $70m was wiped off the Aussie stock market on Friday 24th June, along with the dollar & bond markets down considerably

Our Thoughts:

When it comes to Australian investors, we recommend following our usual ‘diversify’ mantra as echoed by Vanguard (the largest investment fund manager in the world) below:

“Of course, Vanguard discourages market-timing*, which is so often counterproductive. The bottom line is that avoiding or reducing specific investments might not achieve the desired result. Also, much of the effects of the vote are now already priced into asset values.”

*Market-timing is industry jargon for ‘trying to pick when things will go up and down in value’. Your best bet is to hold onto a well-diversified portfolio & don’t make any rash decisions.