Brexit Result & Update

Markets were left in turmoil on Friday following the surprise result of the UK referendum. While the value of Sterling and the FTSE 100 both dropped by nearly 10% at the start of trading, both had risen substantially by the close of the market.

The FTSE 100 futures are currently in the red by 4% and sterling has dropped to 1.32 on the Asian markets currency trading. Everyone is now asking what the future holds and how will the UK handle the result.

David Cameron who has resigned will not initiate article 50 of the Lisbon treaty (Article 50 - Lisbon Treaty) and Boris Johnson and Michael Gove have both backed off from the idea too! This is despite all three of them agreeing that this must be done after a leave result. The exit campaign is now calling for informal talks with the EU, while Cameron has said that talks can begin in October, once his successor has been appointed.

Clearly all sides want a free trade agreement in place before the UK departs the EU. The average free trade negotiation takes 11 years to finalise and most of those would be far simpler than the UK’s departure from the EU.

It’s entirely possible that we will have one or two general elections before the UK enacts article 50 and this could potentially span another decade. It is also possible that the leaders in Brussels could conjure up a new system just like the EFTA, which allows for access to the single market, but possibly with restricted freedom of movement. Indeed, such a system would suit the EU, especially given that it should be taking on Turkey and the Ukraine in the near future.

Last Fridays result may not lead to the UK leaving the single market and certainly won’t any time soon, seeing that article 50 has not been implemented and many other twists and turns may still materialise. The uncertainty and delayed investment decisions is likely to produce long term headwinds and slower growth for the UK economy and may well have a significant impact on UK houses prices, especially in the South East and London.

Financial stocks were hit hard on Friday and may well be hit hard again. The concern is that UK companies will lose their ability to passport across the EU. While this may be a big problem for London itself, the individual companies are unlikely to be adversely affected. Most companies already have other EU licences, that could be used for passporting. As an example is HSBC who are already preparing to move around 1,000 of its staff from London to Paris. All of these staff deal in Euro transactions which may be banned in London following a Brexit.

Investment opportunities could come in the way of financial stocks, which are likely the best opportunity coming out of the crisis. Housebuilders have also been hit hard, but we believe they may drop further until the volatility settles down.