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Jun 27 2016

The world is changing: The Brexit vote is a small piece of a very complex puzzle

Market Update: Briton’s voted to exit the Eurozone last week, sending shock waves through markets, creating political turmoil and causing enormous amounts of speculation as to what it all means. And while speculation is running rampant, the only thing we know for certain is that the process to exit the Eurozone will take about 2 years, perhaps longer as the process is largely up to the U.K. Parliament.


That’s it, we can’t be sure of anything else. A new referendum is unlikely, in spite of gathering over 3 million signatures requiring Parliament to discuss the matter. How will corporations react, will big banks move out of London as some pundits have suggested? Will this cause a new recession given the already fragile economic outlook for Europe and the rest of the world? Perhaps, but then again that could happen regardless of the Brexit vote. The world is changing, the Brexit vote is just one more, small piece of a very complex puzzle. Looking at the recent events in Europe, Britain, through the lens of a U.S. investor is more reassuring than most have discussed, as the U.S. economy is now un-equivalently more attractive and on more solid footing than virtually all other major economies of the world. Correspondingly, while there will likely be increased short-term market volatility, the fundamentals for most businesses, particularly domestic ones, have not changed materially as a result of Brexit. Given the general unease and nervousness associated with the implications of Brexit, we expect high-quality dividend paying stocks to gain even more favor with investors, as their relative safety and attractive yields offer a bit of a safe haven.


In the long-term, we think that the implications and economic impact of the Brexit vote will likely be less severe than many pundits think. Central Bankers will likely remain dovish, keeping interest rates low for even longer – there is even some speculation that the U.S. Fed’s next move will be to lower rates. And while multi-national corporations will likely have an even more conservative attitude towards cap-ex spending these factors will likely be temporary. For now, all indications are that the global economy will withstand this shock and that intermediate and long-term growth trajectories remain unaltered as a result of Brexit.