Special to Indy Politics
Since the day Britain decided to exit the European Union, its effects have been widely felt across the world. In fact, the turmoil it caused on Wall Street led many investors on Market Street in Indianapolis to be concerned, fearful, and angry.
Reuters called the Wall Street’s reaction to Brexit the ‘Worst day in 10 months,’ as it suffered its largest selloff that caught traders off guard. The article suggested the S&P 500 had lost all of 2016’s gains and suffered the biggest decline it had experienced for some time.
Investors certainty aren’t pleased with the outcome, and are fearful of the uncertainty brought about by the ongoing Brexit negotiations, new trade agreements, new taxations and more.
“I don’t have much to take a plunge, what I lose there I want to keep,” said Susan Benson, a legal assistant trying to save for retirement.
Father of six, Ed Isakson expressed the same concerns. He has just finished saving up to put his six children through college. His investments took a hit.
“I see this and think it’s amazing how when fear motivates a decision it has bad results for a lot of people,” Isakson said. “What bugs me is how quickly things go down and how one decision in one country can have such a huge effect on people around the world.”
What just happened?
The United Kingdom’s decision to exit the 28-country strong European Union surprised the global financial markets. The fear of uncertainty over what may happen after Brexit sent stock prices plunging.
However, experts are certain that the best thing to do is ‘nothing’ and that this is just a short-term financial phase that investors need to overcome.
Financial consultant Elaine Bedel said: “The best thing to do right now is nothing. Stay tight to where you are.”
Bedel’s financial firm manages billion dollars worth of investments.
“In the past, we’ve had these same kind of things happen, it’s been short term,” Bedel explained.
Positive look
The referendum has brought some positive news for small investors as Brexit came with many investment bargains. According to brokers interviewed by the Telegraph, trading volume was up fourfold, with the vast majority of trades being bought.
The most popular and leading shares offer the promise of dividend income. TeraMusu stated leading stocks diversify an investor’s portfolio on micro market movements. Since its market constantly changes, stocks provide a powerful way of hedging risks.
Investors are said to be also checking out income-generating funds, dividend-paying investment trusts, as well as funds invested wholly or partly in corporate bonds.
Take note, however, that a drastic fall in price does not mean that investors should buy. But, taking advantage of the debris after the market chaos might give small investors and traders rare and precious income-generating assets.
Long-term effect
While there are some who believe that Brexit’s effect are only for the short-term, there are also possible long-term consequences that need to be addressed and considered.
The UK is a major trading partner of the US. With a drop in the value of the pound, British consumers will be forced to pay more for American products and eventually result in buying less.
The uncertainty brought by the negotiation between the EU and the UK could prevent American companies from investing in new factories, technology, and jobs in the Eurozone.
Cathy Bosner-Neal, an international finance and economics teacher at the IU Kelley School of Business, believes there will be an a noticeable impact to the amount of American exported products due to Brexit. However, it’s unclear how massive the effect will be.
“That leads to lower growth that could impact demand for U.S. goods and for the goods of Indiana companies,” Bosner-Neal said. “The impact is undetermined. It’s unclear how Brexit will play out.”
New Trade Deal
In April, Bloomberg Politics reported that Britain is eyeing Wall Street access in a new US trade deal. International trade secretary Liam Fox said that the UK is working on a new agreement with the US to allow London-based financial institutions free access to Wall Street.
In an interview, Fox disclosed his intention to open up commerce with the US ‘in every sector,’ which he foresees to be the key part of future trade talks between Washington and London.
“We would like to see an open trading environment as soon as possible,” Liam Fox said. “It’s a fair bet that given the shape of the U.K. economy and the shape of the U.S. economy that the service sector will play a very important part in what we look at.”
Currently, the two-year Brexit process is still ongoing and expected to be finalized by March 2019.
