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Brexit and the movement in asset prices

Undoubtedly today’s event will be marked in history, those voting for the exit claiming independence. Despite polls throughout the campaign indicated a neck to neck race, investors were quite confident that U.K. voters were more inclined towards the remain vote.

In fact, this was clearly visible in the latest market movements primarily over the past four days in which the risk-on button was triggered as markets were being more convinced of a remain vote. The FTSE 100 gained confidence with a circa 2.16 per cent gain, the DAX in Germany gained 4.7 per cent while European High yield debt gained momentum with gains close to 0.61 per cent.

Surprisingly enough and to many against all odds, voters opted in exiting the European community despite the huge economic implications that the exit would trigger. All throughout the counting phase the leave voters were leading the run, with the currency market kicking a declining phase with Sterling plunging to circa 8.5 per cent against the dollar, while the FTSE 100 plummeted by 9.5 per cent.

Indeed we are expecting a harsh sell-off throughout the day and possibly further losses in the coming days as investors are fleeing towards safe heavens. This morning the 10-year German Bund touched new lows, gold appreciated by around 5 per cent this morning, while safe heavens currencies such as the U.S. dollar and the Swiss franc also gain ground.

The Bank of England this morning issued a statement early this morning stating that it will take all the necessary steps to meet its monetary and financial stability mandate. This might offer some investors some sort of comfort, but in my view at this stage the market is in a shocking phase and probably any statement by any monetary politician will barely prickle any comfort amongst investors.

In my view at this stage investors shouldn’t panic and get carried away by the market sell-off. Despite further declines might be expected in the coming days, investors should time their exit points rationally. Undoubtedly, the possible slight upward movements might offer this exit opportunity. On the contrary for the risk-taking traders the remarkable downward correction might be the appropriate opportunity to lock in some short-term gains.


Disclaimer: This article was issued by Jordan Portelli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

 

 

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