Brexit offers investors opportunities as well as risks
Colin McLean, managing director, SVM Asset Management looks at the potential consequences and changes that could be sparked by a Brexit
How should investors prepare for Britain’s referendum on EU membership? Both in the weeks ahead of the Scottish referendum and the UK General Election, it proved right to ignore the opinion polls, which can capture a lot of biases and wishful thinking. In the polling booth, fear of the unknown can be the strongest emotion. Investors might be better to monitor the predictions of bookmakers, who have strong financial incentives to get their prices right. Investors who ignore polls but track the betting are less likely to be unnerved in the coming weeks.
What even the politicians and economists don’t know, is whether Brexit would trigger an EU crisis. British exit could be a catalyst for change within the EU itself, which is a work in progress. Currently, political union, banking union and monetary union are in their early stages. Opposition politicians in Europe’s periphery could see exit as an easier option. For some, Europe is a straight-jacket forcing austerity, with the euro a modern-day gold standard restricting growth.
Brexit is likely to trigger speculation on the future of the UK. Investors need robust strategies and diversification of assets to avoid short-term panic. Assets overseas would be revalued in sterling, providing some offset in internationally diversified portfolios.
A devaluation often boosts growth and inflation, and so could improve UK growth. Many British firms – particularly the largest – have a broad spread of global interests. Cash might do better, if Britain’s drift into negative deposit rates is deferred. A broadly-spread portfolio will have winners and losers.
Politicians will play on fears in the coming weeks. Investors should try to stop this disrupting their long-term strategy. In the lead-up to June 23, there will be opportunities as well as risks.
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