The UK voted yesterday, by a 52% -48% margin, to leave the European Union.
What does this mean?
As I’m finishing this, at 9:00 am edt, sterling is down by about 6% vs the US$ and the Financial Times 100 is off by around 4%–meaning a total 10% loss for the index in US$ terms so far in today’s trading. The euro is off by 2% against the US$; the EUROSTOXX 50, an index of the largest EU equities, is down by close to 9%.
Pre-market trading in the US suggests an opening decline of about 3% for the S&P 500, which is better than the -5% decline of around midnight, when the voting results were first announced.
My thoughts:
–my guess is that there won’t be much deep reflection behind trading in the US today. It will be more knee-jerk reaction. So there’s a chance to upgrade a portfolio by buying economically sensitive stocks that may be being sold for no other reason than because they’re typically more responsive to the general ups and downs of the overall market.
–today’s fall in the UK index–so far, anyway–just brings it back to where it was ten days ago
–the earliest that the UK/EU relationship can change is in two years, so there’s plenty of time for new economic ties between the UK and the rest of the EU to be established. I have no idea what those may be like, so I see no reason to base buying/selling on hunches about those possibilities
—currency is my guess for the most important factor that has changed. Weakness in the euro and in sterling is good for multinationals in Europe that have large non-Europe customer bases. By default, the US$ and the yen are stronger, making the road for US and Japanese multinationals a little tougher (the main reason, I suspect, that Japanese stocks fell by 7% overnight)–and therefore domestic-oriented companies a bit more attractive.
–the main concern in continental Europe is that the UK leaving may have a snowball effect, making it more likely that, say, Greece will exit
–UK polls and UK betting houses were very wrong about a last-minute pro-EU shift by the electorate. The UK equivalent of Trump supporters–losers in globalization, anti-immigration and suspicious of career politicians–turned out in unexpectedly high numbers to vote to leave the EU. Poll failure in highly emotionally charged circumstances is no real surprise: people who hold what the think are socially unacceptable positions are always loathe to reveal their true thoughts to pollsters. There will doubtless be some carryover into US politics from the Brexit vote. Whether this is comfort to the Trump camp or increased vigilance in the Hillary corner remains to be seen.