THE BASIS POINT

Thoughts on Brexit.

 

One issue is that the Brexit has not actually happened. The process should take at least 2 years and politicians could conceivable ask for a “Do you really, really want to do this?” referendum. This could have the effect of prolonging the recovery time for markets because now we have a black swan event which may or may not happen some time 2 or more years from now.

This could have the effect of prolonging the period of uncertainty and preventing the recovery of the markets.

In addition macroeconomic fundamentals are still weak or, at best, show modest growth. That is not an environment conducive to rapid recovery of equity prices.

Contrast this to a black swan event such as the earthquake and nuclear disaster in Japan. There the Nikkei lost 16% but fully recovered in 4 months. Recoveries by markets from Brexit may well take much longer.

 

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