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How Will the Brexit Impact the Economy?

How Will the Brexit Impact the Economy?

You may have heard about the possibility of a “Brexit” on the news. But what does it mean and how would it affect your portfolio? Here’s the answers to some frequently asked questions.

What is the Brexit?

The term Brexit, creatively coined by media outlets, refers to a British referendum that will decide whether the United Kingdom will stay apart of the European Union (EU). The exact wording of the referendum is as follows:

“Should the United Kingdom remain a member of the European Union or leave the European Union”

Voters can choose one of two options: (1) Remain a member of the European Union or (2) Leave the European Union.

When is the vote?

Voting on this referendum will occur on June 23, 2016 between 7 AM and 10 PM local time. The results should be known by June 24, 2016.

Why is this important?

A Brexit vote will result in the U.K. having to renegotiate a multitude of issues including immigration, trade, labor, financial transactions, etc. This creates a great deal of uncertainty and also opens the door for other countries to follow suit. The entire structure of the European Union could potentially change.

What is the likelihood of the referendum passing?

This weekend, a number of newspaper publications in the UK published polls showing that most British voters are in favor of the U.K. remaining in the European Union. Polls have shifted quite a bit since last week when polls favored a Brexit. Currently, bookmakers in Britain quantify the odds of a Brexit at only 6/4 (40%) and the odds for a Remain vote at 8/15 (65.22%).

The investment committee at Mason & Associates also feels that the likelihood of a Brexit is relatively low and any short term volatility is not worth abandoning long term positions.

How will a vote to leave the European Union affect my portfolio?

Markets generally to not respond well to uncertainty. If the U.K. does leave the European Union, it creates a level of uncertainty about the future of Europe, which will in return result in some short term downward pressure on equity prices.

However, your portfolio at Mason & Associates is broadly diversified over multiple asset classes and geographical regions. Any impact will be minor, short lived and not a cause for concern. If anything, a potential sell-off may result in a buying opportunity.

How will a vote to stay in the European Union affect my portfolio?

Today, markets responded quite favorably to the new polls out of Britain. If that view point is confirmed on Friday, we would expect to see another short-term rally in equities.

How can I get more information about the Brexit and how it relates specifically to me?

For more information, please contact our office directly at 323-254-3072.

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