Brexit reaction - impact on UK equities

Richard Marwood, UK Equity Senior Fund manager

24 June 2016

The devaluation of the pound sterling will provide a boost to companies with large amounts of overseas earnings, as the sterling value of those earnings will be higher. It should also improve the competitiveness of UK companies that export and make the UK more attractive as a destination for overseas tourists. This currency move, coupled with share price declines, could also make some UK companies more attractive as bid targets for overseas companies, although potential overseas bidders are likely to be deterred by the uncertain backdrop.

The weak pound is going to increase the cost of imported goods for many companies, which may ultimately be inflationary. With so much uncertainty around, companies and individuals are likely to delay major financial decisions, leading to deferral of investment and hiring of staff by firms, and reduced activity in the housing market.

Ultimately, the equity market does not like uncertainty and the ‘Leave’ decision will result in a prolonged period of such uncertainty. We should expect share price weakness and very high market volatility.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.