Nearly two weeks ago, on Thursday, June 23rd, the United Kingdom voted on the Brexit referendum, effectively deciding to leave or remain members of the European Union. The results of the vote – 52% of the nearly 30 million votes were for leave and 48% of the votes for remain – were felt around the world. In one of the slimmest margins in UK history, the nation, consisting of England, Scotland, Wales, and Northern Ireland, voted in favor of the referendum to leave the European Union. So, what does all of this mean for the United States?
In today’s post, we’re exploring Brexit and the resulting ramifications on the global economy, specifically focusing on the impact on American investors, like you, our clients.
Read on to find out What Brexit Means for American Investors.
What is the European Union?
The EU consists of 28 European countries operating under an agreed upon partnership to encourage trade and economic partnership between member countries. The EU fellowship hoped to dissuade European countries from going to war with each other by making them a cohesive functioning unit. Up until recent events, EU members were allowed to travel between countries freely, maintain a standard currency – the euro – and elect members to a common EU parliament to address issues between the countries. The United States has a particularly strong relationship with the EU and with the UK, arguably the EU’s most influential member state.
Since the founding of the European Union after World War II, very few countries have ever left the union – Greenland, Algeria (after gaining independence from France), and Saint Barthelemy (a tiny, French speaking-country in the Caribbean) – until now. The UK’s vote to leave the union is arguably a catastrophic blow to the EU as a whole.
Following the UK’s departure, several other countries are forecasting potential exits from the membership as well.
How Brexit affects the global economy
The full effect of the Brexit is unknown because something like this has never happened before. And, that ‘unknown’ is what’s causing global markets to react in unstable ways. In the wake of the vote, global markets opened Friday the 24th with highly volatile numbers, most dropping hundreds of points. Since then, in a relatively short amount of time, the market has dramatically rebounded back to standard July growth rates. The market keyword to take from the past few weeks is: volatile. The global markets have been making huge swings – up and down – as the world digests what the Brexit means for the global economy.
UK Prime Minister David Cameron has officially resigned his post effective in October. From there, the UK will need to elect a new prime minister to begin the resignation process of the UK from the EU. Once implemented the UK has two years to firm up legal agreements between the EU and former EU member countries. After that, the impact on the global economy is unknown. With something like the Brexit being the first of its kind in modern times, it’s anyone’s guess as to how this whole thing will play out.
What does this mean for American investors?
So, what does this mean for American investors? It means sit tight, remain calm, and ride this financial wave. With so much left up in the air, making a rash decision is unwise at this point. For now, we advise all of our clients to keep and follow their current financial strategy. Once the UK begins the process of leaving the EU, we may begin to look at reworking financial strategies, until then it’s best to stay the course.
In the immediate future, the UK may see a recession as a result from the drop in the British pound versus other world currencies, like the dollar. It’s currently at $1.30 to every British pound. Before the vote, the trade equivalence was nearly $1.50 to every British pound. If you’ve ever wanted to visit the UK, now is the time to get a great value on your dollar to pound exchange rate.
For more specific questions to your individual financial needs, please contact your financial advisor to set up a portfolio review. For more financial information and advice, call: (801) 274-1820 or email email@example.com. We look forward to assisting you on your financial journey through Brexit and beyond.