Britain is currently the 6th largest economy in the world, they hold the 4th military power, possess unparalleled links with the United States, while governing one of the largest financial centres in the world.
In case you’ve been living under a rock (which if you have it’s definitely time to stop…too much is happening in this world right now), you may have noticed Britain has voted to exit the EU in a close 52% to 48% swing (even with majority of voters from Ireland, Scotland and London voting to stay). This massive historical moment has plunged the nation into controversy…and a s**t load of regret as people have already petitioned for a second referendum – #bregret anyone? (oh, and they currently have 4 million signatures). Firstly for those not aware, the EU (European Union) was originally formed after World War 2 as a way to unite countries. It consists of 28 member states and allows free flow of trade of goods and services, people and capital throughout. On the brink of the referendum, many analysts believed Britain would vote to stay…which is why this result caused more shock than anticipated.
So, some of you are probably wondering, what is meant to happen now? Let’s just first get one thing straight. Britain has NOT officially left the EU – no, there’s something called Article 50 of the Treaty of Lisbon which outlines the legal procedure that must be taken by a state should they wish to withdraw, where then a withdrawal agreement would be negotiated between the UK and the EU. This is by no means a quick and simple break-up. It could take a minimum of 2 years to complete – worth it? In this limbo period though, the UK still has to follow laws and policies set up by the EU, but they won’t be allowed to partake in any decision-making. We’re guessing trade is going to be a very sensitive issue in the future.
Alright, what about the markets? What about your investments? Is now a good time to invest? Essentially, leaving would have a negative effect on the British Pound, the stock market and UK interest rates. The pound itself actually saw its lowest point in 31 years…that’s pretty hectic. It’s also been entertained that Brexit could possibly cause house prices to decrease and a stock market crash – even the ASX began to see a bit of increased volatility in the lead up to the referendum so it will be interesting to see how the market’s react when/if Brexit eventually does happen. Don’t freak out yet people – there is much uncertainty about what the future will hold and people’s first reactions tend to be over-exaggerated (something called behavioral finance). The UK share market actually isn’t dominated by domestic companies and therefore, its performance also heavily relies on the international markets. In other words, there are many factors and variables to consider if people are going to say Brexit will cause the stock market to crash. I’ve been watching the volatility of the ASX over the past week or so and some days were definitely worse than others. But as prices decrease, your initial reaction may be to steer clear as it seems way too risky to make any investments, BUT on the contrary, a lot of people see this an opportunity. Take a quick read of the Motley Fool’s take on Brexit: it’s thoroughly optimistic and motivating: http://www.fool.com.au/2016/06/20/brexit-3-great-stocks-for-a-share-market-crash/
Furthermore, this vote for exit has lead UK’s Prime Minister David Cameron to resign. With his strong intentions to stay part of the EU, losing this battle he believes it is time for a fresh government to lead Britain in this next era. If you’re keen to read his speech, head to this website and take a read of the transcript! http://www.smh.com.au/world/brexit-vote-transcript-of-david-camerons-resignation-speech-20160624-gprh35.html
So, ladies and gentlemen, now that you’re a bit more knowledgeable on this whole Brexit thing, do you think voters made the right move?