HH How Investors Can Prepare For The Brexit Vote

While the odds of a Brexit occurring have increased in recent weeks, overall sentiment still seems to be pointing towards them staying put. A June 11, 2016 Newsweek article entitled, “Betting Odds Move in Favor of Brexit as Leave Tops Poll” stated that the implied probability of a vote to stay in the EU in the June 23 referendum fell to 70 percent from 78 percent earlier this week, according to odds supplied by bookmaker, Betfair. Stated differently, there is just a 30% chance of them voting to leave the EU according to these same odds though the popular The Sun newspaper in England just endorsed a “Yes” vote which could change public sentiment in the days leading into the vote. Based on all of the reports that we have read at this time, we still believe that the referendum will likely return a “No” vote.

It is important to recognize that even if the referendum resulted in a “Yes” vote to leave the EU, actual implementation of such a decision would not take place until 2018 given the two year requirement of such a notification in accordance with EU policy. Such a “Yes” vote would likely result in short-term volatility due to the uncertainty of how this will play out within the global capital markets and stoke fears of possible contagion where other member countries may considering leaving the EU as well. If that does occur, this could ultimately lead to the longer term demise of the EU and the dismantling of the common euro currency. While such an outcome would be unprecedented and its market impact within the region unknown, it could prove beneficial to portfolio managers who would then be able to more easily pinpoint particular economies and currencies within the Euro zone for investment that they believe offer the greatest growth potential as opposed to weighing out the ramifications of one governing body and one common currency across multiple countries and cultures.

Over the shorter term, it could also weaken both the British pound and euro currencies and further strengthen the U.S. dollar. A strengthening U.S. Dollar could impact large U.S. multi-national companies that derive a significant portion of their revenues overseas. Potential investment strategies for such an event could include investing in exchange-traded funds (ETFs) that benefit from a strong U.S. dollar or U.S. mid-cap and small cap companies that would not be as impacted by weaker exports and U.S. dollar strengthening.

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Disclosure: The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any of the securities listed. ...

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Louis Jackson 5 years ago Member's comment

I'm of the opinion that events like this don't have any major influence on the market. Sure, it could lead to a brief short covering rally on Friday and into the next week, but ultimately I think things return to normal quickly after. Brexit is starting to remind me of something like Y2K where a lot of people freak out until they realize that the date/event is basically a non event. Brexit and a breakdown of the EU may eventually become an issue, but I think that will be years down the road.