At 3.30 a.m this morning I realised that bed was the best option. The results looked ominous. I watched the markets turn. That was enough. I woke with a jolt at 6.30, hoped it was all a bad dream, but 'no' - "Britain has voted to leave the EU", announced Radio 4. The news from the investment markets was cataclysmic: "sterling falls to the lowest level since 1985 against the dollar"; "equity prices collapse, wiping billions from the value of shares".
I was not expecting this result. Neither were the markets. The sharp falls overnight suggest that the decision wrong-footed traders. Over the few paragraphs following I hope to make some sense of the momentous decision.
There was proliferation of nonsense uttered before the vote regarding the economic consequences. This cannot have been helpful. However, unlike recent market shocks, this one is self-inflicted and institutions were able to prepare for both 'in' and 'out' scenarios. Indeed, the Bank of England made an appropriate supportive statement this morning.
Intriguingly, further QE is just the medicine that economies require. Providing more stimulus is the answer to the economic malaise and it just might have a positive effect on the UK economy once the knee-jerk shocks have been shaken out of the system.
The emotional response to a market shock is often an overshoot. Indeed, the FTSE100 index has risen, today, from 5,788 to 6,182 (as at 3.00 p.m.) - a rise of nearly 7%. The snag is, it closed, last night, at 6,338! I make this point to demonstrate the dangers of forming one's investment decisions from the persuasive headlines portrayed in the media.
Sterling is bound to be weak as a consequence of this vote. Investors might wish to withdraw their investments from the UK resulting in a sale of sterling. However, central banks across the globe have adopted polices to weaken their currencies for the past few years. Effectively, the US withdrew from the game last December when the Fed increased their interest rates. The equity markets did not appreciate this move and caused a two month drift in equity values until the Fed supported them with soothing words. The point is that a weaker sterling is not, necessarily, a bad thing at this juncture. Certainly, many constituents of the FTSE100 index trade in dollars and a stronger dollar is a benefit to these companies.
It is noticeable that sterling has not fallen as much against the euro. That does suggest that investors have some doubts about the euro. Indeed, the BREXIT result could have profound consequences for the European Union with calls for referenda from several member states. This could provoke a more consolatory tone within the EU and I would not rule out the prospect of the UK remaining in the EU but with a series of demonstrable concessions.
It is undoubted that the next few months shall exhibit heightened volatility. Investment markets are on edge and shall be easily spooked. I do expect domestic UK companies to suffer as confidence erodes - it is important for the UK that leadership is restored quickly. The situation in Scotland is distinctly unsettling for the UK.
The approach of this firm is to avoid knee-jerk reactions and to make only long-term considered investment decisions. Portfolios have been structured to weather storms by combining a broad geographical base, a variety of asset classes and stock selection. The forthcoming weeks and months are likely to be a testing time for investors and advisers. We shall do our utmost to guide our clients through the noise and identify the trends and opportunities that emerge.