The Brexit and its effect on the Australian Market and Economy

It is official, in a shock referendum result, Britain has voted to leave the European Union. Now the world watches as our British counterparts dive into the political unknown. So, now we have an answer, what does this mean for Australians?

 

Comment from Mark Beveridge – Quill Financial Planning

Mark Beveridge-150px-Quill-Group-Financial-Planner-Southport-Financial-Planner-Gold-Coast-Financial-Planner-Eight-Mile-Plains-Financial-Planner-South-Brisbane-Financial-Market-Update-May-2016

Markets were rallying all week on the expectation that the Remain vote would prevail.

Now that it seems that Brexit is on, there has been carnage as the positions built up by those convinced that Britain would remain in the European Union are reversed.

 

At the time of writing the ASX200 is down 183 points, or 3.42%

 

We can expect a big down market tonight in Europe and the UK, and no doubt in the USA as well.

 

The downside in those markets overnight will lead to further losses in the ASX200 on Monday when we open.

 

However, after the books are squared, and speculative positions un-wound, we think that cooler heads will prevail and when US and UK markets open again on Monday. Sometime during their trading day we should see a bottom and a bounce, from which point stocks that are unaffected by the Brexit issue will rebound.

 

Three key areas the Brexit will impact

 

Our Currency and the Exchange Rate

  • Based on an analysis by the the Commonwealth Bank’s Global Market Research, the British Pound could fall up to 10 per cent.
  • The good news is that the Australian dollar could rise 8.3 per cent against the British Pound, however, against the US Dollar, the Australian dollar could see a fall of 2.5 per cent.

 

The Share market

  • The Brexit will bring extreme short-term volatility leading to turmoil in the UK and global markets.
  • Due to the uncertainty surrounding the impact of the Brexit, Australia’s share market will probably fall along with other global markets.
  • In a worst case scenario, the Brexit could trigger another financial crisis.
    • Banks may have more difficulty sourcing offshore funding
    • Term Deposit investors will be thinking about the $250,000 guarantee again
    • Australia may not avoid a recession like it did previously in 2008

 

Superannuation

  • Due to the nature of Super, being a long-term investment, the volatility mentioned above will have little impact on investors with 10 year time horizons.
  • Unless you have your stash all in one nest, the short-term turmoil that may occur will only affect a small component of your super assets.

 

Leave a Reply

Your email address will not be published. Required fields are marked *