Share Markets Continue to Whinge Over Brexit

Political television can be some of the most exciting and frustrating viewing you’ll ever see. Depending upon your political views, you may love and agree with everything panellists say. However, I find myself more often than not yelling at the TV in frustration. ABC’s Q&A is one of those shows.

I keep telling myself not to watch ABC push their leftist agenda, but this week I caught a glimpse of the first question presented to the panel. The question came from a Gen Y Australian who asked how Brexit would affect Australia’s budget deficit.

It’s great to see that young people are still interested in the global economy. But his fear may be unfounded. As Alan Jones, the infamous radio personality put it, the only thing that took place was a ‘vote’.

And he’s 100% right. Right now, the only thing that’s happened is that the markets have had a right old whinge. Share markets around the world are nosediving. Not because we are on the verge of an economic crisis, but because they dislike uncertainty.

European and British banks are putting up the biggest stink, some dropping more than 30% two days after the vote.

Bank Investors Brexit stage left. European and British lenders' share price moves.

Source: Fairfax Media

But I see all this blowing over in the short term. Britain is not leaving the European Union (EU) straight away. This event is unprecedented. Article 50 of the Lisbon Treaty has only been enforced since late 2009. And it hasn’t been tested yet.

In essence, the process for Britain leaving the EU will take some time. It is only nihilist reporters that are screaming ‘apocalypse’ and ‘doomsday’.

If we look to the Australian market, the S&P/ASX 200 has only dropped 4.6%. While this translated into billions of dollars in losses, it’s nothing compared to some of the short, sharp drops experienced in 2007–08.

Barclays [LON:BARC], the British bank, has even predicted that the Reserve Bank of Australia will cut interest rates again. According to an article in the Sydney Morning Herald this morning, Barclays are suggesting Brexit’s impact on global growth and sentiment may force a rate cut.

Sure, UK inflation might dip. But I find it hard to believe that Australia will be adversely affected by Britain’s sentiment. I would argue that negative sentiment coming from China would cause far greater waves in Australia.

China is our major trading partner. And, for many of our industries to thrive, China has to play its part. But the word ‘sentiment’ might sum up this whole situation better than anything. All that you’re seeing now playing out across markets is a downturn in sentiment.

The good news is that you can profit in these situations. Warren Buffett has made a living out of it. A bear market is exactly where you want to be if you want to pick up cheap stocks. So don’t get swept up in the hype, just be ready for investment opportunities when they arise.

Härje Ronngard,

Junior Analyst, Money Morning

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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