The world watched in disbelief as the UK decided to opt for Brexit i.e. leave the EU. After the vote, we have already seen a weaker pound, increased UK exports and stock-market rallies. However, the fact is that the UK has yet to leave the EU and the long-term implications of the move are not yet clear. Although exit negotiations between the EU and the UK have begun (Article 50), unraveling 40 years of union is no mean task. While capital markets seem upbeat about the decision, the signs elsewhere are not so positive.
The story so far
Implications for US investors
The relative isolation of the US economy and the delaying of an interest rate increase by the Federal Reserve due to the vote meant that the Brexit decision had a limited impact on US investors. Most American investors are expected to consider domestic economic trends first for guiding their decisions. Several of them are moving their capital away British gilts and towards US Treasury bonds and gold. Before taking any step, a US investor should consider the extent of its exposure to the UK economy, how the country’s tax and regulatory environment will affect it, and free movement of workers and goods.
What does the future hold?
Elections in Germany and France in 2017 will add to the uncertainty of the climate in which Brexit negotiations will take place. In the short term, market sentiment will be determined by the country’s exit terms with the EU. After Brexit, trade prospects will be dependent on the country’s relations with non-EU nations (notably the US and its protectionist president) and its engagement with organizations such as the WTO. Overall, investors are advised against making impulsive moves in response to events that will unfold. Keeping abreast of the developments will suffice at present.
Elizabeth Parrott is a director at Evalueserve. She will participate in the FPANorCAL conference in San Francisco on May 30–31, 2017. There, she will discuss the issues raised in this blog and share more implications for US investors.
Read more on the topic in our recently published industry insights – Brexit: What US Investors Need to Know.