Transcript of Podcast
The stunning victory of Brexit supporters last week in the UK referendum will be the driving force of markets in the coming weeks. It will be fascinating to see how events unfold as Britain is again deeply divided post the polls.
There is infighting amongst the two biggest political parties in the UK, the Prime minister has resigned and it remains on the new leader to see through a smooth exit of Britain from the EU.
Within the UK statistics reveal that the exit was voted for by citizens mainly in the age group of 35 and above and the young voters are unhappy with the outcome stating that their future is decided by the older generation. A record 1.6 million people have signed a petition on the UK Parliaments website asking for a second referendum. Reports suggest that there isn’t any mechanism in the UK to trigger a referendum on its own so this petition may die eventually.
Meanwhile Scotland who majorly voted for a remain vote would go in for a second independence referendum.
France & Germany and the other EU members are asking for a clean swift separation. Insecurity and concern on the British living and working in the EU and Europeans living and working in Britain are on the rise. Global banks are now evaluating moving into EU countries from London given issues of free movement of workforce. Businesses worry about tariffs and lack of free access to EU markets. Investments into UK may slow down on uncertainities on Brexit.
The EU itself may face more countries going in for referendum. Given all this, financial markets will stay volatile as news unfolds on Brexit.
As far as India is concerned there is a view that the country may be insulated to a great extent largely to improved macros, record high foreign exchange reserves and political stability. Our biggest risk is a major risk off in the markets, which may lead to a massive capital outflow. That is a possibility if more countries leave the EU leading to a full fledged breakup of the EU. As of now that seems to be a distant possibility.
It is very unlikely that US will raise rates immediately. Global central banks may again do another round of monetary easing to ward of recession and support growth. In fact Indian debt may benefit from Brexit. To see our note on it click here.
Equities may react further with stock specific impact that has to be evaluated and acted on.
It follows that you need to be cautious and watchful of the markets and not act in haste either to buy or sell. Given that our analysis suggest that India is more likely to benefit from Brexit rather than have a long lasting negative impact, any fall in valuations of stocks in our recommended portfolios can be used as buying opportunity. Click here for our Model 12 and 19 Stocks Retirement Portfolios and Global 10 stocks Retirement Portfolio.