Our View on the Brexit

XPYRIA Insight
Last night, residents of the United Kingdom voted by a slight margin (52% Leave / 48% Stay) to end their 40+ year relationship with the European Union (EU).  Chief among the “Leave” voters’ concerns is rampant immigration from other European countries which they believe cost English citizens jobs and a sense of security within their country.  These pro-Brexit advocates believe leaving the European Union will help protect and restore the country’s identity.  Advocates to “Remain” believe that staying in the union would be better for the British economy.  

As a result of the “Leave” vote, global markets are experiencing a selloff as participants try to figure out how this will affect the UK and the global economy.  Contrary to what some commentators have suggested, we do not believe this is another “Lehman Brothers moment” as experienced in 2008.  Despite the selloff, global markets have maintained order and are functioning properly.  

Uncertainties both politically and economically will likely cause bouts of volatility in the markets in the near-term as the Brexit process is hammered-out.  However, we do not expect the United Kingdom’s GDP to go to zero, the global economy to crater, or banks to fail simply because of the Brexit.  

Little has changed economically.  We still live in a slow-growth, low interest rate, low inflation environment.  While the Brexit decision may have a negative short-term economic effect on the UK and Europe through delayed corporate investment and consumer spending, the decision will likely only exert a marginal effect on global economic fundamentals.  

We believe that the current market moves reflect fear rather than rationality in the markets. Further volatility and excessive market reactions to the downside will create unique opportunities in global equity markets for long-term investors.  XPYRIA will continue to monitor these opportunities and add to positions where we see value.  We expect the experienced money managers that we utilize in your portfolio to do the same.  

The UK has chosen the rockier of two paths and the decision is being viewed negatively by the market in the short run.  However, we expect its effect will prove to be marginal and the market’s initial negative response to create opportunities for patient long-term investors.   As always, XPYRIA is focused on looking beyond the noise and investing based on fundamentals rather than emotion.  

-The XPYRIA Team