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Brexit – What Now?

The UK electorate confounded the bookmakers last week voting ‘Leave’ in the referendum on EU membership, leaving political analysts and financial markets wondering what happens next. 

The long-term impact of the vote on the UK economy and the knock-on effects internationally will ultimately depend on the relationship the UK ends up having with the EU – there is a spectrum as to what this could be: from a restrictive relationship with constraints on movements of people and tariffs on trade, to a benign relationship akin to the Norwegian model (and even the possibility that the UK still does not leave the EU cannot be entirely ruled out at this stage).

However, the current issue is that in the absence of clear political leadership in the UK there is uncertainty as to what the UK wants this relationship to be and how it will engage with the EU to agree that. The uncertainty is exacerbated by the disunity within the UK – both of the main political parties are divided, there were conflicting regional votes and there are divisions among the general population. This leadership vacuum is unlikely to be resolved at least until after the Tory leadership contest which is not expected to be concluded before September.

In the meantime uncertainty will be to the fore. UK businesses and individuals are expected to defer investment decisions and the consumer is likely to be more cautious. While the UK may bear the brunt of this there will be some spill over internationally. For the UK a period of economic contraction in the near term is now highly probable while global growth is likely to be lower than previously expected. 

We would expect that central banks will take supportive action to mitigate the impact of this uncertainty. Further policy easing by the Bank of England is expected (maybe in the form of lower interest rates and a restart of Quantitative Easing) and some action by the ECB is also possible. Elsewhere, decisions on when to raise interest rates in countries such as the US and China are likely to be delayed. 

Financial markets had a significant initial reaction to the referendum result – sterling and equities fell, although there has been some recovery in recent days. The period of uncertainty ahead is unlikely to be friendly to financial markets particularly as negative newsflow on economic and business activity is announced. However, some would argue that a lot of the uncertainties have already been priced in and central bank policy moves may provide some reassurance. The only strong likelihood is that markets are likely to remain volatile until clarity emerges on how the UK’s relationship with the EU is likely to evolve. 

We remain focused on building long-term returns without taking undue risks and we remain alert to taking advantage of bouts of volatility to build our positions in high quality assets at sensible valuations. 

(Our unit funds are next priced on July 1st and our July monitor will update on how our investment strategies have performed post the Brexit vote).

The information contained in this material is not financial advice. Nor does it constitute an offer for the purchase or sale of any financial instruments, trading strategy, product or service. No one receiving this material should treat any of its contents as constituting advice. It does not take into account the investment objectives, knowledge, experience or financial situation of any particular person. You should seek advice in the context of your own personal circumstances prior to investing or taking out any product from your own independent adviser.
This material has been prepared and issued by Appian Asset Management Limited on the basis of publicly available information, internally developed data and other sources believed to be reliable. While all reasonable care has been given to the preparation of the information, no warranties or representation, express or implied are given or liability accepted by Appian Asset Management Limited or its affiliates or any directors or employees in relation to the accuracy, fairness or completeness of the information contained herein. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. 

If you decide to invest in the Appian Unit Trust, further information in relation to all risks is provided in the Fund Prospectus and supplements. This material is available from Appian Asset Management Limited, 42 Fitzwilliam Place, Dublin 2. If you invest in the Appian Unit Trust, you may lose some or all of the money you invest. The value of your investment may go down as well as up. This investment may be affected by changes in currency rates. 

References to past performance are for illustrative purposes only and are not a reliable guide to future performance. Projected returns are estimates only. Forecasted returns depend on assumptions that involve subjective judgement and on analysis that may or may not be correct. 

The above disclaimer and limitations of liability are applicable to the fullest extent permitted by law, whether in Contract, Statute, Tort (including without limitation, negligence) or otherwise.
Appian Asset Management Limited is regulated by the Central Bank of Ireland. 

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Patrick J Lawless
Chief Executive Officer
Eugene Kiernan
Head of Investment Strategy
Frank O’Brien
John Mattimoe
Head of Equity Analysis
Lisa Neary
Fund Manager
Niall Dineen
Senior Fund Manager
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Senior Relationship Manager
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