Brexit is a process, not an event. Life will find a way

In a close referendum which saw 72% polling, about 52% of Brits want to leave the EU. Amid all the noise and adjectives being thrown around, we should recognise that Brexit is a process and not an event. Life will find a way to get past this.

Soon after early trends became clear, the pound fell sharply against the dollar (hence stabilized) and so did markets around the world. At the time of writing the Sensex is down by about 3.75%. Is this a knee-jerk reaction? Yes, but that is how the markets always react.

What does this mean for my investments?

Absolutely nothing. My long-term goals have not changed. Short-term goals have not changed. Monthly investing, periodic monitoring and management will continue.  The key as always is to avoid/not react to noise.

With that out of the way, we should understand that Britan exiting the EU is a process that would take up to two years after  article 50 of the EU treaty is invoked by the British Govt. This will not be done until October under a new PM (see below).

The primary responsibility of British govt now is to ensure there are no knee-jerk reactions. The main issue is the timing of the referendum. David Cameron came (back) to power only in May. 2015.

While the referendum was a poll promise, the PM was strongly in favour of ‘remain’.  I wonder if the govt was quite confident of securing the result they want.

With nearly four years in office left, the people of Britain are divided almost in half. It is not a strong mandate to ‘exit’ but about a million more are in favour of leaving.

There is only 4% difference between  BRexit and BRmain. This in of itself is a mess. There is enough argument for the poll to be declared a stalemate. However, it is clear that BRexit will be implemented.

So this leaves the government to implement something that it does not believe in! The press and the opposition are already calling for Cameron’s exit. Clearly, this is a mess.

The PM has now made a statement that he respects the people’s ‘will’ and ‘instruction’; No immediate change in ‘circumstances’; Country requires fresh leadership; Cannot be captain anymore. New PM by October.

It appears that British has voted in fear of more and more Europeans settling there regardless of the immediate costs! Imports costing more because of a weaker pound and at the cost of a recession!

They are in fear of losing jobs and opportunities to “foreigners”. But many Brits are also working in jobs associated with the EU and they face a lay off now!

Can’t help being reminded of Donald Trump supporters.

The free market agreement that is in place now would continue for up to 2 years after Britan officially informs the EU that it want outs. In this time, the govenrment and businesses will have to negeotiate a new agreement.

This will come at a cost, but I believe life will find a way. Will take some time though.

Markets will be volatile for one reason or the other. As long as our goals are years away, there is no reason to panic.

Meanwhile, FM Min Arun Jaitely has said in a statement:

We are well prepared to deal with the short and medium term consequences of Brexit;. Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation. Our immediate and medium-term firewalls are solid too in the form of a healthy reserve position.

 

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5 thoughts on “Brexit is a process, not an event. Life will find a way

  1. Democracy is kind of crazy and stupid. If people can vote for #Brexit (despite all the disadvantages) – it’s only time before Donald Trump is elected as president. How can common man decide on the economic ramifications of such a big decision?

    Totally agree – nothing changes from an investment point of view. But I just hope this is not the Lehmann brother kind of event – that led to the market tumble for 2-3 years.

  2. I am amazed how wrong the “Experts”, “Leaders” and of-course, TV commenterati have been! These folks have been harping on Remain and the people voted for Exit.

    Same happened with Rajan Exit. The TV channels and Newspapers with their Experts predicted bloodbath in currency and stock markets and both got better on Rexit Day. LOL!

    Another lesson: Ignore the “Opinions” of “Experts”.

  3. The main reason for BRexit is not economic reasons, it is the fear of immigration and refuges that are mushrooming in EU. Wait and see how mess will be Germany and other EU in next few years. (may go the France way)

  4. Democracy is not crazy and stupid. If majority of people wants something, then it must happen, that’s the idea behind democracy and rightly so. What have you got against Trump? He has his pros and cons just like any other presidential candidate. Sure he is bold, arrogant and outspoken and it comes as no surprise that many people understand that he may not be the perfect gentlemen that everyone envisions a president to be but sometimes we need people like him to lead a country and take her to greater heights. If I could vote, I sure would vote for him as well.

  5. How will the fund managers going to play in this market?
    Scenario 1: Markets in for long term volatility. Some stocks will underperform and get chucked out and new will come in portfolio?
    Scenario 2: Markets in for long term volatility. Some stocks will underperform and get chucked out and fund manager sit on cash till volatility comes down?
    Scenario 3: Markets in for long term volatility. India story is intact?

Comments are closed.