Brexit and Canadian Investors

Executive Summary

Great Britain has decided, via referendum, to leave the European Union.  The shock and surprise of this decision sent markets into turmoil after the result was announced.

There is much to be decided, and the effects of these decisions, that will then become the basis for further negotiation to depart, or provide additional information for negotiations to remain.

Canadian investors should see the headlines and market results return to normal levels once the shock of the voting result wears off.

What you need to know

Major economic and political changes are often anticipated well in advance.  This anticipation allows markets to adjust gradually over time, as the certainty of a change becomes more and more pronounced.  In the case of the Brexit (BRitain’s EXIT); it was a surprise, and the markets had not built-in the anticipated changes to equity prices, market indices, and commodity prices.

British Prime Minister, David Cameron, who had called the referendum in an effort to solidify support for the European Union, was compelled to resign because of his error in judgment.

Other EU-member countries like Italy, France, and the Netherlands have had their right-wing leaders push for a similar referendum.

Bottom Line

If this result was anticipated, then the market correction would have occurred over several weeks and months, not immediately.  Nonetheless the result would be the same.

Only those Canadian investors who are heavily exposed to the U.K and Europe could see long-term issues.  For almost every other investor, the sound fundamentals leading to investment decisions in individual stocks or funds will remain.

As always, it is important to monitor the short term, and focus on the long-term impact of short-term developments.