Many investors will want to run to their nuclear bunkers now that the apparent end of the world is nigh. But emotional reactions are usually the wrong ones when it comes to investing. Here’s a summary of the best reactions from investment experts to the Leave result.
The short term outlook
The result of the referendum leaves a lot of uncertainty. This will weigh heavily on both economic growth and financial markets. But plenty of commentators say long-term investors should not worry too much.
Richard Buxton head of UK equities and CEO of Old Mutual Global Investors says: “Investors should now brace themselves for an unpleasant period of relatively indiscriminate selling as funds aim to meet redemptions in conditions where liquidity may be more limited than usual.
“Within equity markets, as ever at times of market stress, emotional reactions will mean that price falls will overshoot; this is the very nature of stock markets. The gold price was one of a very small number of bright spots as the result became clear; it immediately broke convincingly through the US$1,300/oz barrier, as investors looked for safe havens.”
Colin McLean, managing director, SVM Asset Management says: “In the short term, the worst affected areas of the UK market will be mid-cap, housebuilders, property, banks and leisure. But the UK may be able to move to European Economic Area status, which would preserve a lot of the trading benefits. The EU’s challenge will be capital markets union, banking union and moving towards political union.”
The long term outlook
Neil Woodford of Woodford Investment Management, is the UK’s best-known and most successful fund manager. He says: “In the longer term, it is my view that the trajectory of the UK economy, and more importantly the world economy, will not be influenced significantly by today’s outcome. Although market conditions such as these can be unsettling, we would strongly urge investors to look through this period of uncertainty and focus on the long-term opportunity which, in our view, continues to remain attractive.”
Steven Forbes, managing director of independent financial advisers Alan Steel Investment Management, says: "Neil Woodford has seen many such 'crises' during his career as an investment manager and his is a voice that we pay attention to."
Despite market turmoil, investors should “do nothing”
Adrian Lowcock, head of investing, AXA Wealth says: “Times of uncertainty will knock investor confidence as they see falling share prices and panicked experts predict doom and gloom. This leads to making quick and often irrational decisions, such as selling after the market has fallen. Investors need to remember that, in the short run, markets over-emphasize the importance of current events whilst they barely register over the long run as markets revert back to fundamentals.
“Companies will adjust and the British economy will adapt. Investors need to look through all the noise and remain focused on their personal goals. Any sell-off will produce opportunities for prudent investors looking at the big picture and focused on the longer term. A weaker sterling will help the UK become more competitive and could boost the earnings of many of UK’s large companies where the bulk of profits are made overseas.”
Mr Lowcock’s three tips for investors are to:
- Do nothing - The initial reaction on seeing a market fall is to sell to avoid losing any more money. Usually investors sell on the bad news and only come back to the market once they have seen it stabilize and recover. Selling any investment will be after the event and will mean you realise any losses.
- Review your goals – Always think about what you are investing for. Do you need the money right away or are you saving for your retirement. Keeping in mind your goal and how long you are investing for will help put any short term sell-off into perspective.
- Look for opportunities – Any sell-off creates opportunities to invest as they are often indiscriminate. Markets tend to over react to events but in the longer term they smooth out. Be greedy when others are fearful is a good philosophy.
Investors should “try not to panic”
Andrew Wilson, head of investment at Towry, the wealth manager, says: “For investors there is little short-term good that can come from all this, as the Brexit vote is going to cause excess volatility and increased risk premia. What we will now see is the massive unwinding of positions and hedges that were placed around this event, although these will no doubt be built up again around the forthcoming US elections. Increased volatility also means an increased chance for active portfolio managers to prove their worth by making good decisions that materially benefit the investments of their clients.
“As we look forward, a wider risk is that an anti-globalisation and anti-internationalism trend takes hold, as this will further push a policy prescription of protectionism and increased trade barriers. Fundamentally, the more difficult it becomes to move capital, goods, people and jobs around the world, then the less easy it will be to grow invested wealth, the more chance that standards of living drop rather than rise, and actually the tougher it is to be a smaller or specialised political entity.
“As ever, history would suggest that investors should try not to panic, and instead stick to their long term plans. If they also have diversified and regularly rebalanced portfolios, then it would be highly unusual to experience inferior performance, over time, and, on the contrary, good decisions even in the most volatile of markets can materially improve the outcome.”
“Buying opportunites” on the horizon
Some experts point to buying opportunities from market falls. This is good news if, like many investors, you've been sitting on cash in the run up to the EU referendum.
Lee Wild, head of equity strategy at stockbroker Interactive Investor (Moneywise’s parent company) says:
“This is a Black Friday for stock markets. The 40-year EU experiment is over and both share prices and the pound have collapsed in spectacular fashion. In a few minutes of absolute chaos at the market open, over 500 points were carved off the FTSE 100, and the mass exodus from risk assets like equities will put February's four-year low of 5,500 under serious threat. After that, it's anyone's guess. Hold onto your hats!
“Billions have been wiped off the value of bank shares, housebuilders and insurers, losing as much as a third of their value in seconds, but the sell-off is broad-based. In time, UK exporters and companies that make a large chunk of their profits overseas should profit from the weak pound. Drug companies are doing much better than most on Friday.
“This sell-off will create buying opportunities. Markets tend to overshoot on the downside and some stocks will now look very cheap. Picking up quality companies amongst the carnage might prove a sensible strategy for long-term investors.”
Richard Potts, partner at Irwin Mitchell Asset Management, said:
“The vote for the UK to leave the EU has triggered a big fall in the FTSE 100 as investors react to the result. However, this decline will probably present good buying opportunities for investors. The fall in the value of sterling will benefit those companies with large overseas earnings. As many of these companies are large and overseas earnings represent a significant proportion of companies in the FTSE, this boost to earnings could attract buyers. Coupled with this is that the economic implications of Leave will take many years to unfold could see a quick recovery from any initial sell off. Bond markets are likely to rally further as investors seek safe haven assets during a period of uncertainty. It is possible that longer dated bonds will not prosper in the longer term as weaker sterling translates into higher inflation and foreign investors who typically buy longer bonds desert all UK markets.