Written by Hudson General Manager Phillip McGann
Well the momentous Brexit vote last Thursday (U.K. time) has come and gone and left a political, long run economic, and (importantly for investors) an immediate financial market tsunami in its wake.
The media coverage has been extensive but a brief recap is in order to put the event in context.
So what was and is Brexit all about?
The British PM David Cameron, in response to a growing political issue, announced before last year's British general election that if re-elected his Tory government would work with the European Union (EU) to garner more favourable terms for British involvement in the EU.
He was going to press for more favourable treatment around areas such as immigration and controls of laws effecting British trade. Then at the end of the negotiation he would hold a referendum to give the British public a simple yes or no referendum to stay or leave the EU.
It all sounded great at the time and a good option to “kick the can of EU participation” down the road a bit. However in the negotiations that followed the EU did not play ball and gave the PM little in the way of substantial changes to British membership of the EU.
So he went ahead with the vote as promised and it was put to the British people and the result was a very much unexpected 52% to 48% vote in favour of the leave camp.
So what will happen now?
Well under the laws of the EU if a member country wishes to leave it needs to invoke what's known as Clause 50 of the Lisbon Treaty which then begins a two year negotiation with the EU on the exact terms of an exit from the EU.
This is where we are now!
So why the huge volatility in financial markets over recent days for an event that will take at least two years, if not longer, to eventuate?
Bottom line is uncertainty. Financial markets hate uncertainty above all else and this event was effectively un-expected and so investors have reacted - as they are wont to do - in a very volatile manner.
This provides canny investors opportunities - more on that below…..
The current events are really more political than economic events. The Brexit event has turned UK politics on its head. The PM has resigned as he said he should not be the one negotiating the terms of the exit with the EU when he promoted the Remain side of the argument.
The Labour opposition sided with the stay campaign as well and its lacklustre campaign leading to a poor turnout of its voters for the Remain has led to calls for the Opposition Leader Jeremy Corbin to follow the PM out the door - at the time of writing he appeared keen to stay the course.
And just to add more fuel to the political fire the Scottish nationals have said the results showed that most Scottish people wanted to remain in the EU and so they are agitating for either a second referendum on Brexit or a veto to disallow the British parliament ratifying the exit vote. Failing this they will push for a second Scottish Independence vote, after the original failed vote, only 20 months ago.
Oh and SINN FEIN (an Irish republican political party) has likewise said the pro Remain vote in Northern Island means they should have a vote there to re-join the Republic of Ireland.
So the political fallout behind a 52 to 48 Brexit yes vote could well mean the breakup of the U.K. itself. Talk about shooting one’s self in one’s own foot!
David Cameron was asked during the campaign about the chance of a second vote in the event the referendum produced a close result; he had this to say;
“If we vote to stay, we stay, and that’s it. If we vote to leave, we leave, that’s it. You can’t have neverendums, you have referendums.”
So why is this a buying opportunity for Hudson investors?
When events like this present themselves the financial markets go into turmoil and all sorts of flights of fancy enter the mind of traders. But it is good to stop and think about what this all means in a rational manner and see if the current turmoil presents opportunities? It does present a great buying opportunity for rational investors with a long term outlook.
So when will a Brexit actually occur? Minimum two years if the UK government enacts Clause 50 but it likely won't be in any hurry to start the clock running, so the time frame moves further out.
The immediate financial fallout is excessive. The U.K. has its own currency and its own central bank. The U.K. is not Greece and is not beholden to the powers of Brussels for its currency. The UK has the world’s fifth largest economy. The rules relating to Financial Institutions will not be changed any time soon so it is business as usual for (on some measures) the largest financial centre in the world - The City of London.
The U.K. Pound collapsed ten percent against the U.S. dollar on announcement of the vote, which if sustained, just made U.K. goods ten percent cheaper than their competitors in all sorts of markets.
Want to have that long dreamed of trip to the mother country? Well it just got ten per cent cheaper due to a referendum decision.
Local shares fell heavily last Friday in the wake of Brexit but not as much as offshore markets where investors fell over themselves to run for the exits.
Japanese shares fell eight percent (due to a vote in the UK about an event that will take two plus years to play out). Is that rational investing or are emotions running wild?
So how will Brexit impact the U.K. economy over time?
Well it won't have unfettered access to the EU as it does now but it will negotiate access over talks in the next two years as have other European countries (like Switzerland and Norway) that are not in the EU but have access to its markets.
The EU will likely play hard ball during these negotiations to try and deter other exit votes in countries where the EU is more on the nose than in Britain, such as France and The Netherlands, (anyone for FREXIT or NEXIT?) but this will take time and the markets can judge the progress over the next two years and not immediately assume the worst.
The whole European project appears set for a change or other nationalist forces will try and push for other countries to face their own exit challenges; but this is for their people to decide.
For Hudson investors this event presents opportunities to get set in long term well managed companies directly or through Managed and Index Funds that will provide growth for your portfolios for years to come. Don't miss the opportunity and call your adviser to discuss.
Did you know that The Hudson Finance Department is a fully operational finance broking service, which operates from within the Hudson head office in Brisbane?
Finance and Loans
Hudson Finance is available to non-members as well as to our members.
Hudson's experienced finance brokers have access to a large number of lending products in the marketplace and by working with your financial adviser, our team are in a position to be able to recommend the most appropriate products to suit your circumstances, your risk profile and your long-term goals.
Not only can we help you find a great deal when refinancing your existing loans and when taking out new loans, but we will also help you through the application process step-by-step.
The Hudson Finance Department is a fully operational finance broking service, which operates from within the Hudson head office in Brisbane.
We service our members for the majority of their financing needs including the following purposes:
- New home purchase
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Why use the Hudson finance division to apply for a loan and NOT your local bank?
Familiarity of your financial position — Because you are a member of the Hudson Institute and have a dedicated financial adviser we have access to all of your up to date financial information. This makes the initial assessment of your financial needs easier and the application process a lot smoother.
We want your loan to be approved — We don’t charge any fees to our members for our services in the finance division. We get paid a commission from the lender upon settlement of your loan. We therefore don’t get paid unless your loan is approved and settled and thus we will present your loan application in the best light possible to the bank. Keeping a close eye on any policy changes within our lending panel and ensuring that we have all necessary supporting information available to get your loan approved assist in this process.
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Getting a good deal — The commission we get paid from the lender is similar regardless of what product or rate that we achieve for you. If there is a possibility of achieving a cheaper rate than what is advertised we will endeavor to seek this. This involves us submitting a pricing request to the banks pricing cell, which includes a thorough submission of why we support the further discount. This is the same process for any potential fee waivers or discounts.
Priority service — We do large volumes of lending within the Hudson finance department, mainly because of the above factors. As a result we have been given priority service with some of our main lenders. These lenders include the Commonwealth Bank (Diamond Brokers), Westpac (Advantage Plus Brokers) and St George (Gold Brokers). This ensures that we receive fast approvals and excellent support, which culminates in a smooth process from approval to settlement.
Loan structuring — Part of working hand in hand with your financial adviser means that we look very seriously at how your loans are structured, taking into account tax implications, cost, and future plans.
Future lending — Through AFG's (Australian Finance Group) FLEX (online loan application) system all applications that we submit for our members are saved into the FLEX system ongoing. What this means is that your position is saved into our system and therefore when you are looking at any future lending scenarios we can quickly and easily assess your position and have an
Speak with our Finance Manager Matthew Kerr on freecall 1800 804 296 about this in more detail, or make a time online now. application submitted within minutes by simply copying your old application, amending appropriate details and lodging it online. This means there are no appointments to be made with a bank manager and no 30 page manual application forms to complete.
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It hasn’t been a good week across the markets this week and there is no hiding the fact that Brexit (Britain’s exit from the European Union) has had an impact. While the Aussie markets started to make a recovery on Wednesday all markets, except the FTSE, were down.
Wall Street made gains at the end of trade on Wednesday with investors seeking bargains. The S&P 500 recouped more than half of its losses following the exit while energy shares rose along with the Dow Jones industrial average; even the European stock market showed a recovery.
|Index||Closed at...||% change over the week|
|All Ordinaries (AUS)||5,221||Down 2.5%|
|Dow Jones (U.S.)||17,695||Down 0.5%
|Nikkei 225 (Japan)||15,567||Down 3.6%
|Hang Seng (Hong Kong)||20,436||Down 2.0%
|S&P 500 (U.S.)||2,071||Down 0.7%
|FTSE 100 (UK)||6,360||Up 1.6%
|Australian Dollar (US cents)||0.75||Down 0.9%
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