Today, Bank of England Governor Mark Carney said that the central bank had provided additional liquidity to the banking system, and that it would lower key interest rates and take other measures. With that impetus, the FTSE 100 (Financial Times Stock Exchange) Index rallied to its highest point in 2016.
Boris Johnson’s announcement that he would not run for the Prime Minister post added to the rally even more. Mr. Johnson might have dropped in the polls, as buyers’ remorse seemed to punish the politicians who had actively supported the “Leave” vote. Home Secretary Theresa May, an ally of Prime Minister David Cameron in the “Remain” camp, seems to have moved up, becoming the current favorite to succeed the P. M. Additionally, as a proponent of the Remain faction, Secretary May might be better-received in the future negotiations with the European Union.
Think of the Brexit vote in the United Kingdom as an earthquake, and we seem to have just survived the initial quake so far; but, the economic after-shocks are gradually building, and those effects will be on-going. David Cameron prefers to leave the next step to his successor in negotiating the “Divorce” from the E. U. Remember that the actual Brexit will not begin until Britain, more specifically the new P. M., initiates it. And it will take two years of complex and detailed negotiations. Until the Divorce is finalized, the U. K. remains a full member of the E. U.
In the interim, businesses and individuals must factor-in the potential impact of Brexit on: re-locations or expansions on either side of the English Channel; hiring activities; planning for university attendance; import-export business; retirement living, etc. In fact, every E. U. citizen working in the U. K, or Brits working on the Continent, will not know where their future lies, perhaps until the end of 2018.
Most global stock markets have rebounded nicely from the initial shock last Friday and Monday; however, the actual recovery depends upon the depth, liquidity, security and overall resilience of the stock exchanges in the various countries. Currency recovery likewise depended upon the soundness of the particular underlying country and its economy. Bond yields, for the most part, have remained lower, reflecting weaker recoveries perhaps for the long-term.
Personally, I would suggest emphasizing large (Large Capitalization) companies in your portfolio. Don’t forget “defensive”: stocks–those in Consumer Staples (necessities); Health Care; Energy and Utilities either. Also, most investors focus primarily on their home financial markets since that is what they are familiar with. If their home markets are not very liquid and efficient, they should also include a significant component of one or more strong markets.
For instance, when I put in an on-line trade order, either to buy or sell, I get confirmation within seconds. Undue delays can mean either an illiquid market, a securities company manipulating the executions of trades, or both. Deal only with markets and securities dealers that provide complete transparency!