The initial shocks from the out vote have now been recovered (mainly in the FTSE100) and are back to levels from the Thursday before the vote when a Remain vote was predicted, so the net impact compared to 2 weeks (albeit volatile) has not been huge. However the FTSE250 was hit harder by the leave vote and is still down in the region of 7%. This is due to smaller companies deemed as more reliant on imports and so will suffer much more from the fall in sterling.

The fall in sterling has also resulted in banks and property funds seeing larger ‘sell-offs’. The European markets have also suffered as the Euro has not been affected much as a result of the vote, so there has been no currency ‘flip side’ to counter share price falls.

Overall the recent recovery suggests that a lot of the initial panic is over and the large cash balances that was being held by consumers, funds and investment managers is now starting to be invested. This has seen higher trading action from retail investors looking to pick up perceived bargains created by the market volatility; Lloyds Banking Group has seen considerably higher trading than usual trading activity.

Outlook

Following the results of Brexit the market is in more of a risk off mode. With Gilts & haven currencies strong and equities weak. However, this risk aversion is potentially more due to uncertainty than data at this stage. There are now a significant number of unknowns that would cause a further market shock, investors have been seen to taper their equity positions and add to more secure positions. Potential repercussions from the Brexit vote may include another Scottish referendum, extended leave negotiations and weakening economic performance in the UK/ Europe/World. It is likely that UK growth will slow dramatically and there is a real possibility of a recession in the short term. Much will depend on business and consumer confidence.

Prior to the vote there was a threat of more cuts in the event of a leave. This would be severely damaging to the UK’s prospects. Given the low borrowing costs the current or future chancellor may be tempted to provide fiscal stimulus to drive business/consumer confidence in the short term. George Osborne has already pledged to lower corporation to below 15%, which would give the UK the lowest rate of any major economy.  Such a move would be significantly positive for markets. The longer term implications for the UK economy and companies will be dependent on the terms of the negotiations to be completed in the next 2 years and beyond.

Given these uncertainties, it is more difficult to make a call on anything with a strong conviction. Any movement in a portfolio will carry potential risks; a move into international equities at the wrong time could expose portfolio to excessive currency risk and vice versa. In a historic moment, British government bond yields entered negative territory for the first time, thus moving into the “safety” of gilts raises interest rate and inflation risks as well as the possibility of a UK government credit downgrade.

You should always remember that the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested. All investments carry an element of risk which may vary significantly. If you are unsure as to the suitability of a particular investment or product, you should seek professional independent financial advice.