As the Brexit vote sends new shocks through financial markets how will the Brexit vote affect your investments? Reuters describes the current financial chaos caused when British voters choose to leave the European Union.
Britain’s decision to leave the European Union sent new shockwaves through financial markets on Monday, with the pound falling despite the country’s leaders’ attempts to ease political and economic turmoil unleashed by the move.
But sterling later sank to its lowest level against the U.S. currency for 31 years, continuing the fall that began last week when Britons confounded investors’ expectations by voting to end 43 years of EU membership.
This put the pound, and European bank shares, on course for their biggest two-day slides on record.
Chinese Premier Li Keqiang said uncertainties over the global economy had heightened and called for a “united, stable EU, and a stable, prosperous Britain”.
Russia is pleased to see the European Union weakened and China is concerned that business as usual will suffer. The USA is losing its best and strongest link (through the UK) to Europe. There will be lots of problems in the wake of this decision but how will the Brexit vote affect your investments?
Investments in British Stocks
The first level of concern is if you have investments in British stocks. As we noted in our article, How to Invest in British Stocks, the Brexit could end up helping British manufacturing by reducing the value of the pound and making British exports more competitive.
The Guardian thinks Brexit would help UK manufacturing because it would do away with high EU tariffs.
There is a reason why our internationally competitive manufacturing companies such as JCB and Dyson support Brexit. To survive and compete the UK has to expose itself to international competition and needs to focus on selling into the fast growing markets of the future.
The alternative of remaining protected behind the tariff wall and regulations of the EU makes companies flabby and less competitive in global markets. Yes, there are many big firms who want to remain in the EU. Not only do those big firms have the ability to lobby Brussels but they all too often focus on the short term and their next quarter’s results.
A weaker pound would help UK exports and perhaps a reduction in trade regulations might also be useful.
Effects of Brexit on the US Economy
Time writes about why Brexit is a big deal for the US economy.
Politicians and technocrats of all stripes are trying to reassure Americans that Britain’s vote last week to leave the EU won’t affect them economically. They are wrong.
Brexit has already caused a number of dominos to fall. Scotland and Northern Ireland, frightened of being cast adrift from Europe, may vote to leave the U.K. in order to stay in the European Union. Far right wing voices that were already gaining steam in places like Germany, France and the Netherlands have been emboldened. Politicians in the latter two countries have already called for an exit vote.
The angry unthinking populism that has been infecting politics in the UK is active in Europe and in the US as well. Businesses like stability and the “throw the bums out” approach of Trump and others comes with no clear and proven path to a better world. How the Brexit vote will affect your investments in the US may be badly. The dollar is likely to rise as a safe haven so increasing the cash position until things become more clear may be the best approach.