Surprising “Brexit” sparks stock market drop worldwide.
Britain voted to leave the European Union (EU) late yesterday. “Brexit” (Britain’s exit from the EU) triggered a market and economic shock as the referendum results were a surprise. World developed and emerging market stocks were mostly up in June leading up to this referendum, suggesting markets were not expecting a Brexit outcome. The initial shock of the unexpected result prompted a sharp decline in stock markets around the world. In the wake of the results, Britain’s Prime Minister David Cameron announced his resignation. The once in a generation vote triggered once in a generation market moves.
The European bank index fell the most ever today, while the British pound tumbled to a level not seen in over 30 years. European equities markets were hard hit, with the Stoxx Europe 600 following 7%, marking its worst session since October 2008. Stocks in Asia finished sharply lower, being the first to react to the decision by the U.K. to quit the European Union, with Japanese equities posting their largest decline in more than 15 years. Japan’s Nikkei 225 Index tumbled 7.9%,
As I stated, this decision was unexpected and leaves the world financial markets with tremendous uncertainty. We have not heard anyone today – not a currency trader, not a commodities trader, and no one on the bond or stock side – speak with any clear authority about what might happen to asset values now. In the UK nothing happens right away; no contracts will be canceled immediately and whatever change occurs will be incremental. But presumably there will be less commerce between the UK & Europe over time. The one certainty is that uncertainty now rules the day.
Your account’s allocation has remained defensive since going into this year and will help offset the Brexit shock. We expect cash reserves, gold exposure and currency hedges will benefit your account during this time of high volatility. We believe market volatility will continue through year-end and are confident that maintaining our diversified allocation plan is the most prudent approach to reduce risk.
Be assured we are actively monitoring this event and its effect on global markets to best position your portfolio for its impact.
Thanks again for your continued trust and confidence.
Sincerely,
John Gardner