Save & Invest Financial Planning

Brexit - a shock for markets, or a crisis?

24th June 2016

Article republished courtesy of J.P. Morgan Asset Management

Contributors: Stephanie Flanders, J.P Morgan Global Markets Insights Strategy Team

Investors have been seriously wrong-footed by the result of the EU referendum. But the shock of City traders this morning is nothing compared with the stunned response of the people who thought they ran the country. The economic and political questions raised by this vote will not be answered for years, possibly decades. But the immediate questions for investors are how long the "risk-off" mood in markets will continue and how much damage it will do in the process.

Our first assessment is that this is a large shock but, ultimately, a local one.

These are significant consequences. But right now we do not think the Brexit shock poses an immediate threat to the global recovery. Over time, we would expect this reality to be reflected in asset markets outside the UK, particularly in the US, where the stock market has reacted sharply to a result which would be expected to have only modest direct consequences for the US economy. However, it could take some time before the dust settles and investors should expect plenty of volatility, as UK policymakers and the wider world come to grips with the consequences of this historic vote.

This immense shock for the UK will have an economic and financial impact on the rest of the world, but we believe that the fallout should be manageable, if policymakers respond appropriately and investors keep their heads. Whether the political implications will also be containable, particularly in Europe, is another matter.

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