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Sable International's Brexit brief

by Mike Abbott | Jun 24, 2016
  • The UK has gone to the polls and the decision has been made. The outcome is, however, the one that held the most economic uncertainty. Most investors knew this was a possible outcome, but the inevitable negative financial effects of a Brexit vote are becoming evident immediately.
    royal-exchange

    The economic effect

    The Pound has fallen hard against its trade basket and equity markets are down in the UK, Australia, Japan and Hong Kong. In the short term, the negative effects of this outcome will be felt most by domestically focused companies in the UK, while multinationals should see an improvement in earnings with a weaker Pound.

    The one notable and important exception is the UK banks. Barclays’ share price has already dropped 30%, with The Royal Bank of Scotland down 34% at the time of publishing. Share swings like this are likely to affect most, if not all, portfolios due to the size of these companies and their systemic nature.

    Diversify to prosper

    Our approach has, for some time now, been to hold a diversified portfolio of equities and bonds for our clients and to invest for the long term. We have no UK bias in the portfolio and only hold 8% of UK equities – an accurate reflection of the share of world market capitalisation held by such equities. That said, many of the largest companies on the FTSE are large UK banks.

    The bond side of the portfolio is also global in nature, and of late has mostly held UK treasuries simply because the US yield curve is one of the few of the 12 in the portfolio that are positive at the moment. Many of the big, developed market yield curves are offering negative yields. The UK Gilts portion, which is seen as a safe haven asset, has seen improvements since markets opened. This will offset some of the sterling effects, but probably not all.

    With David Cameron now stepping down, the UK’s future leadership structure is in doubt - as is its credit rating.

    This decision will herald in a period of considerable uncertainty and portfolios are likely to see significant volatility. However, I do believe that the globally diversified structure of our portfolios is the best position one can hold while weathering this storm. Specific portfolio changes could see one caught on the wrong side of the correction. Inevitably, markets will overshoot as the panic runs its course, so it’s important to stay in and see this through.


    If you have any concerns about your investment portfolios, contact our wealth team at wealth@sableinternational.com. Alternatively, you can call one of our advisers on +44 (0) 20 7759 7519 (UK) or +27 (0) 21 657 2142.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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    Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services License issued by ASIC to deal in foreign exchange (1st Contact Group - AFS License number 335 126).

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