Brexit – what it means for you
The United Kingdom (UK) has voted 52% in favour of leaving the European Union (EU), resulting in financial shockwaves around the world.
What happens now?
Even though the public votes are in, the referendum is not legally binding and the ultimate decision remains with the Government. On approval, the UK Government is required to invoke Article 50 of the Lisbon Treaty, notifying the European Union (EU) of their departure.
The UK government will then have two years to negotiate their terms of exit with the other EU countries in matters such as immigration and trade agreements.
Potential implications on investments
The full impact on financial markets will not be known until the UK and EU manage the situation and negotiate terms. It is expected that the uncertainty will continue, resulting in share market volatility. As a consequence, there will potentially be ‘flight to safety’ defensive style assets, in particular fixed interest.
Low global inflation is likely to continue and as indicated by the American Reserve Bank, interest rate increases are likely to be postponed. Locally, the Reserve Bank of Australia (RBA) will continue monitoring whether further cash rate reductions would be prudent.
The impact on Australia
There is likely to be minimal impact to Australian exports to the UK, which amount to approximately 1.5% of Australia’s total export.
Other areas of the economy likely to be impacted include tourism, the Australian banking sector and the resource sector.
As it stands, the banking sector is heavily exposed to the UK and Eurozone and as the Brexit unfolds, this will provide challenges for the sector.
The softening demand for commodities in the UK and elsewhere will likely result in lower commodity prices. This is likely to have a negative impact on the economy as Australia continues to be heavily reliant on this sector.
In previous meetings, the Reserve Bank of Australia has indicated that further reductions in the cash rate may be required. With the increased volatility as a result of the Brexit, the RBA’s stance would likely remain unchanged.
What this means for you
It is understandable that short-term volatility and changing values of your investments may cause some concerns.
Important tips to consider when dealing with times of financial volatility:
- Don’t panic – Remember your investment strategy and don’t make fast decisions that may have long term impact on your investment.
- Diversification is key – Exposure to various investment asset classes will ensure your portfolio isn’t overexposed to one asset class causing most of the volatility, such as direct equities.
- We’re here to help – If you have any questions, contact your Financial Planner and schedule regular reviews with them to ensure your investment remains in line with your goals and objectives.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular circumstances and needs.
Financial planning services are provided by Eastwoods Wealth Management Pty Ltd ABN 17 008 167 002 / AFSL 237853 trading as Beyond Bank Australia Wealth Management. Eastwoods Wealth Management Pty Ltd is a subsidiary of Community CPS Australia Ltd ABN 15 087 651 143 / AFSL 237 856 trading as Beyond Bank Australia.
Information sourced from Brexit: Hope or Glory. Prepared by Riccardo Briganti, Investment Specialist. BT Advice Research.