In a referendum held June 23rd, British voters expressed their will to exit the European Union. The European Union (or EU) is a confederation of member countries that created a common economic area with laws allowing trade and people to move freely. The initial market reaction to the referendum was dramatic across the globe.
This week we present quality curated content that explains what just happened and how investors should react.
Britain’s Vote to Leave. George Friedman, the founder of Geopolitical Futures, writing for The Huffington Post, explains three reasons for the outpouring of votes to leave—economics, sovereignty, and political elitism. On economics, the opponents of the EU noted that the EU is a dysfunctional economic entity that has been unable to address the economic problems that have developed since 2008. In his discussion on sovereignty, he notes that the immigration crisis in Europe was a trigger. Finally, politicians, business leaders and intellectuals were all seen as having lost their right to control the system. Click here to read the full article
Why Brexit happened and what it means. According to the blog, Marginal Revolution, the vote was about preserving the English Nation. For centuries England had been filled with English people, plus some others from nearby regions. Since joining the EU in 1992 the number of foreign-born people living in the UK has gone from 2.3 million to 8.3 million in 2014. All this migration has brought a “cultural trauma”. Quite simply, the English wanted England to stay relatively English, and voting to leave was the instrument they were given. It would be a mistake to frame this as racism and xenophobia. The regions voting most heavily to leave were those which best remember—and indeed still live—some earlier notion of what England was like. Referendum results were a vote for protection of core identity. Click here to read the full article
British Shock—What’s Next. Britain shocked the financial community by voting to leave the European Union. Global equity markets plunged as traders searched for perceived safety in the midst of uncertainty. The U.S. economy is fairly healthy and should manage to stay out of recession territory in the near term, although risks have risen. The next several weeks could be a tumultuous time in global markets, and investors need to keep a long-term view I mind. Global stock markets have tended to ultimately rebound from other sharp declines—often fairly quickly. It can be tough to get back on track once things reverse. Schwab recommends investors use volatility to tactically keep allocations in line with their long-term strategic targets. Click here to read the full article
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