BREXIT

image001Welcome to our last newsletter for the current financial year – and we can certainly say the year is going out with a bang. Not only do we have an election just two days into the new financial year, we have also just been subjected to the shock of Brexit.

Having spent most of May in the United Kingdom the result does not surprise me. Almost everybody we spoke to was tired of the bloated bureaucracy that calls itself the European Union and the fact that Britain had to pay £350 million a month just to prop it up. The Brits were also tired of having two thirds of their laws dictated to by Europe. One, that has caused considerable annoyance is the EU decree that banned referees whistles at school football matches on the grounds that they could frighten to timid children!

In the next few months there will be much about Britain in the news, but bear in mind the media tends to focus on the negative news. If you watched the 6 PM news on Friday you may well have been scared to death. We were told that millions had been wiped off our superannuation as markets fell, oil prices had plunged, and the British pound had suffered one of its biggest losses in history. Yes – this was all true, but they did not mention that when the All Ordinaries index fell 3% it had simply taken back the gains of the week before. Similarly, Japanese shares were down 8% on Friday, but they had risen 5% over the prior five days.

I think much of the blame for the Brexit vote can be attributed to the scare campaign run by Prime Minister David Cameron. He warned of drastic consequences and even hinted that leaving the EU could lead to a world war. To make matters worse supporters of remain tried to paint the supporters of Brexit as racist.

If we take an Australian view, the fact that the British pounds has fallen 9% means it will be cheaper for us to holiday in Britain, and their exports will become more competitive. And keep in mind that the days when Britain was a major trade partner with Australia are long gone – the vast majority of our trade is now with Asia.

History tells us that markets tend to rebound quickly after crises. Even the bombing of Wall Street in September 2001, and the Japanese tsunami and nuclear  crisis in March 2011 were quickly forgotten –  markets recovered a few weeks later.

In short, expect volatility, look for buying opportunities if you have money available and take a long term view. The American economic recovery, and the Trump versus Clinton in the United States presidential elections will soon be back in the headlines.

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