After the EU referendum result was announced the FTSE 100 initially fell by over 8%, triggering some of the more alarming headlines in the press today. However, stocks quickly recovered and ended the day down but only to the same level as a week ago. What happened in the last week was that markets starting pricing in the outcome of an expected remain vote, causing the FTSE 100 to rise in the days leading up to the referendum. Those gains have been lost today but the market has not fallen significantly beyond this. The market is higher now than when the EU referendum was first announced in February 2016.
Professional investors such as Schroders and Invesco Perpetual consider that blanket falls in the market are invariably a good time to invest as good companies get caught up in the general downward movement of prices and can be bought more cheaply. These companies are still fundamentally strong so still offer good potential for the long term.
It is essential to take a long term view as there will inevitably be volatility in the short term as the UK negotiates its ongoing relationship with the EU. However, neither investment professionals nor the Bank of England are concerned that this is the start of another financial crisis like the ‘credit crunch’ in 2008. Individual companies are in a much better position than in 2008 with strong balance sheets. Similarly the capital requirements of banks are much greater meaning they are stronger and able to continue lending. The direct impact of our EU referendum result on the rest of the global economy is not sufficient to trigger systemic global worries. Once the negotiations are complete, research commissioned by Woodford found that the long-term impact for the UK economy is likely to be neutral.
The advice from the professionals is not to panic as the most damaging thing to do is to buy high and sell low. They suggest instead remaining in the market and buying selectively – bargain hunting, essentially. For most investors who access the market via funds rather than buying and selling individual stocks themselves, this will be the job of their fund or portfolio manager.
Falls in the currency market have also hit the headlines, although these are not as severe as those predicted before the referendum. This is not necessarily bad news as for some companies, particularly exporters and those operating in international markets, a weaker pound is a benefit as it makes their goods and services more attractive overseas. Again, it depends on picking companies that are well-positioned, which fund managers will be busy doing now the result is known.
If you want to review your portfolio or fundholdings as a result of the referendum please contact Richard Higgs CFP FPFS on 0117 966 5699 or email@example.com.