It was no surprise when the UK voted to leave the EU. The result of this decision, however, has led to a significant change in market sentiment. Investment funds suffered 5.7bn outflows after the Brexit vote on June 23rd and European markets took a big hit as well.
This article will explore these changes in more detail and how they might affect your investment strategy. When you invest, it is always important to be aware of current events that may impact future performance so that you can make decisions accordingly.
This blog post will provide an overview of recent events and what they mean for investors going forward. Now let’s get started!
The world has been watching closely since last Friday’s Brexit vote results were announced: 51.8 percent of voters chose that the UK should leave the EU. The Brexit vote sparked immediate selling of financial assets, which sent global equity markets tumbling.
A total of $2.1 trillion was wiped off global shares in two days of trading according to CNN Money .
However, today (Monday), stock markets are actually rallying on hopes that central banks will help to calm the disruption. As a result of this, the FTSE 100 is up 1.4% and Dow futures are up 0.8%.
UK Financials Suffered huge losses after Brexit vote
The London FTSE 250 (a secondary index that contains more UK-focused companies) fell sharply on Friday by 7.3 percent after the Brexit vote results were announced.
The FTSE 250 tracks the performance of the top 250 companies listed on the London Stock Exchange and includes retail, industrial and financial firms. It is often used as a leading indicator for UK economic activity because it reflects how these publicly traded companies are performing. Financial stocks made up almost 40% of the FTSE 250 and they suffered huge losses after the Brexit vote.
Since Friday, high-profile UK banking stocks have fallen by even more than their European counterparts: HSBC closed down 8.2%, Barclays fell 8.1%, Lloyds dropped 12%, and RBS is currently down 16% today (Monday). The financial sector concentration in the FTSE 250 index meant that it fell almost 8% over the weekend.
Furthermore, yields on UK government bonds plunged to record lows. The yield on 10-year gilts dropped to 1.045 percent, which is 206 basis points lower than at the end of May.
This means that investors are willing to lend money to the UK government for 10 years in exchange for very little interest. This is again, an indication of the higher risk that investors are seeing when it comes to UK investments.
Brexit also caused volatility in currency markets
The pound fell by 11 percent against the dollar after Brexit vote results were announced on Friday night. The reason that the pound fell so sharply is because the UK economy relies on its service sector, exports of goods and tourism.
A weaker pound makes it more attractive for foreign investors to buy British products from exporters. However, volatility in currency markets cause uncertainty which is bad for businesses who are trying to make long-term plans about their future investments.
UK stock markets have taken a hit, but markets in other countries have also fallen on concern about the health of the global economy. For example, European stock markets were down almost 7% and US share prices fell 4.6% between June 22nd and June 24th.
This is already forcing central banks around the world to take action and try to alleviate future problems. These events are unprecedented, but our global economies are closely intertwined and it is important to make sure that you are aware of current events. Stay tuned for more.
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