Why the Stock Market Won’t Even Notice Brexit

stock market

Withdrawal of the United Kingdom from the European Union in the so-called Brexit referendum that was held on 23 June 2016 was supported by 52% of voters. Even though many options for the UK are questionable after that day, if you observe the FTSE 100 index you cannot see a particular difference.

This means that Brexit made no impact in this field. Furthermore, British shares were going up and down just like other stock markets around the world. However, it does not mean that this could not change. So the question is how investors should behave now when the UK is out.

Even though the significant reduction in growth and trade were predicted by the Treasury, as well as the International Monetary Fund and the Bank of England, the majority believes that in the long term, the UK and its economy will be even stronger without EU.

As much as you would expect that those elitist economists from Oxford or Cambridge are right about their economic forecasts that do not necessarily have to be the case.

When Olivier Blanchard, chief economist of the IMF at that time, warned in 2013 that the deficit reduction programme which was proposed by George Osborne was simply “playing with fire,“ Britain proved him wrong. The following year their economy was the fastest-growing major economy in the world. Later, Mr. Blanchard tried to explain his wrong prediction by claiming that he observed the wrong facts.

When it comes to the whole Brexit situation, it seems that these same economists are not observing facts at all, not even wrong ones. Besides, they are apparently interested in presenting gloomy figures in the end.

However, if they put in different assumptions into their computer model such as all those benefits that the UK received after Brexit like less regulation, new trade deals around the world, lower taxes, reduced costs of foods which were against the EU regulation, as well as renewal of the fishing industry and recovery of the auction industry, or more flexibility in financial services and there it is! Their computers would provide us with statistics on a prosperous future.

Even though the majority in the UK and Europe believed that there is no chance that the UK will ever leave the EU, it appeared that British were ready to move on in their separate path.
So, what was the stock market reaction after the referendum?

The immediate reaction was chaotic for everyone, including the UK equity investors. However, with the historic nature of the referendum, the market has been quite straightforward. For instance, the large-cap FTSE 100 index is 13% up since the day that the United Kingdom voted out.

And as predictions showed, many companies and businesses were not damaged or influenced at all by Brexit. Many of these companies are completely international businesses which have subsidiaries around the world. Some of them operate in America and Africa which means that the European Union and Brexit are trivial matters for them.

On the other hand, the companies which have all their operations in Britain, also should not necessarily feel any negative consequences of Brexit. Most of the businesses which operate within the borders of the UK will remain unaffected by this event, such as tourism and catering. Furthermore, it could also benefit their businesses in many ways. For instance, many construction companies could also have better prices on the imported goods which they use in the production.

It is not questionable if the United Kingdom can survive without the European Union. Even though the first period may seem rough and chaotic over the time people will understand that with this deal they have received a lot more than they previously thought they would. According to the statistics, the stock market did not even notice the difference between the times when the United Kingdom was an important part of the EU and now when it functions without the EU and its rules.

In this whole situation, the United Kingdom proved its strength and determination to be the country which is able to grow and function perfectly on its own and without the help of the European Union.