Exactly what the initial reaction is from here will only be known as the day unfolds; many commentators expect the Bank of England to step in and provide liquidity sooner rather than later, but the exact timing remains murky. Some expect an announcement as soon as this morning, while others are of the view that a meeting of central bankers will take place over the weekend. Whether or not any action is needed immediately is up for debate as well, but less contentious is the expectation that low rates will be with us for even longer.
What is certain, however is that the path from here, for the UK as a country, the EU as block and global growth more generally, gets increasingly unknown and any sort of quick resolution flies out the window.
There are some things that are known, however. As Andrew Wilson, head of investment at Towry, expressed it: “For investors there is little short-term good that can come from all this, as the Brexit vote is going to cause excess volatility and increased risk premia.
“What we will now see is the massive unwinding of positions and hedges that were placed around this event, although these will no doubt be built up again around the forthcoming US elections. Increased volatility also means an increased chance for active portfolio managers to prove their worth by making good decisions that materially benefit the investments of their clients,” he said.
More importantly, he added, investors should try not to panic. And, as Hermes Chief Executive Saker Nusseibeh, said: “it is now incumbent on everyone in the financial sector to work to try to mitigate the risk to our beneficiaries created by politics.”
There will be short term trading opportunities, long term entry point opportunities and all manner of traps to avoid. If there was ever a time for cool heads to prevail, now would be it.
