The polls and bookmakers were wrong and the Brits have voted to leave the EU by what looks to be quite a decent margin under the circumstances. Panic has already set in in the markets, there’s no avoiding the significant volatility over the short term. Trying to time the market right now will be difficult and it remains to be seen what happens overnight and into next week.
As it stands, Scotland (62% Remain) and Northern Ireland (54%) voted to Remain, but Wales (53% Leave) and England (54%) to Leave. Within England, inner London showed strong support for “Remain”. Final results are expected later in Manchester Town Hall. If confirmed, it would be an unprecedented event for the EU. The outcome represents a major surprise as consensus had been assigning a 25% likelihood to a “Leave” win on the morning of June 23, and risk assets had rallied noticeably up until polls closed.
In the short term, we do expect major central banks and regulators to take steps in case of excessive market turbulence and to launch liquidity support measures.
Not surprising, the ASX fell 3.5% today. Markets overall have been hit so we prefer to wait for some stabilization over the next few days. The process to exit may take up to two years and as there are so many unknowns to the situation the opinions on the true impact are unsurprisingly divided - experts are saying the impact could be positive, negative or neutral!
Ultimately an exit will open up short- and long-term risks. Short-term, the pound has already dropped significantly, now at the lowest level against the US dollar since 1985. Short-term credit markets are also tightening, which puts companies reliant on short-term financing at risk (banks, namely).
The UK’s position in the EU is unchanged until exit procedures are completed. We expect PM Cameron to resign although there will be calls for him to stay on and preside over the transition.
Based on so many unknowns, trying to determine the medium term impact on the markets is very difficult. As more unfolds we will continue to keep you updated.