The old adage, “markets take the stairs up and the elevator down,” certainly seems appropriate in light of the UK’s referendum vote to leave the EU, or Brexit, last Friday. Let’s not forget it was just a year ago that Greece’s own referendum on EU membership was on the table, albeit with the focus on the single currency, which of course, the UK never adopted. The world at that time had at least semi-prepared for the impact of that decision. That was certainly not the case with the UK, where many were caught off-guard after the results of the Brexit Referendum. The political and economic questions surrounding the world’s 5th largest economy are numerous with the resultant uncertainly throwing not only the EMEA markets into a tail spin but causing reverberations around the world.
Looking at the markets’ response last Friday, it makes perfect sense the biggest impact was felt in the currency markets as evidenced by the massive drop off of the pound vs. the dollar (and the yen and the franc.) But the sheer scope and magnitude of these events cuts across all geographies, strategies and industries.
Using AlphaSense, we looked at some other markets to see YTD performance following the voting results, and the number of mentions the terms, “Brexit” and related market keywords returned in our search.
Two Key Points from the Data:
Given the events of the past few days, it’s clear that risk aversion, capital preservation and higher volatility will be the norm for the foreseeable future. With new developments happening every hour it seems, staying “in the know” will be as important as ever. For value investors looking for bargains, understanding the macro environment through rigorous qualitative research will be an exercise of paramount importance (and patience).