The Learning Centre:
Brexit, market volatility, and what it means to you and your investments.
2016 continues to be the year of surprising political outcomes
June 27, 2016 — As of Monday morning, June 27th, it appears that 2016 will continue to be the year of surprising political outcomes. On Thursday June 23, 72.2% of United Kingdom (UK) voted 51.9% to leave the European Union (EU). Scotland and Northern Ireland voted strongly to remain part of the EU (62% and 55.8% respectively). England and Wales voted to leave by a relatively narrow margin.
Over the next day markets reacted as expected, with severe volatility. The GBPUSD plunged by more than 10% from the previous day’s UK close, but recovered and to hold near 1.38 (-8.5%). The Toronto Stock Exchange fell 239.50 points, and the Canadian loonie lost more than a cent.
In the near future, there is little doubt that the vote will have a negative impact on UK economic momentum. The vote could also act as a catalyst for political uncertainties, both domestic (another independence vote for Scotland) and internationally (further encouraging populist movements in France, Italy and other countries).
Impact to Canada may be less than elsewhere. Canadian trade with the UK is relatively small, at 3%. However, financial and confidence spillover could shave real GDP estimates by 0.5 percentage point or more in the second half of this year.
What does this mean for Educators’ clients?
Fund Manager for the Educators Financial Group’s Mortgage and Income Fund, Derek Amery, Head of Canadian Fixed Income, HSBC Global Asset Management says that Brexit’s potential negative impact could result in the Bank of Canada’s (BoC) decision to delay raising interest rates. So if you’re planning on buying a home or renegotiating your mortgage, interest rates could remain low for longer than anticipated. Any action on the part of BoC should be confirmed when they meet July 13th.
For Educators’ clients who hold the Educators Mortgage and Income Fund, Amery states that “the Fund will benefit from lower bond yields as a result of heightened risk aversion and a flight-to-quality by investors.” (For a more complete commentary on Brexit, click here.)
Educators Financial Group Certified Financial Planner professional Marian Ollila, says that investors also need to keep in mind that ups and downs are the norm in the stock market, the important issue is to “keep invested to benefit from long-term growth.”
If you have questions regarding the impact of Brexit on your portfolio, please call your Educators Financial Advisor at 1.800.263.9541.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Readers should consult a financial planner and their own accountant and/or legal advisor for specific advice related to their circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy. ©2016 Educators Financial Group