The concerns over Brexit are probably overdone and there are several factors that might limit the downside, according to Instreet Investment.
Managing director, George Lucas, said despite some expected negative impact on markets, this week’s vote in favour of leaving the European Union (EU) also provided some room to take a closer look at the post-referendum scenarios.
He noted that all the nervousness around Brexit might be premature and the uncertainty would ease once the outcome was known.
Lucas pointed out that even if the outcome was a decision to ‘leave’ it would still take some time before any changes would take place and the UK would remain a member of the EU for a few more years.
“This also means there would be time to clear up some of the uncertainties about the wider impact of Brexit, notably the arrangements which would govern UK trade with the remainder of the EU and the rest of the world,” he said.
Lucas also stressed that although Europe was still Britain’s biggest trade partner, its importance as a trading partner had been consequently going down since the global financial crisis as “Europe has stagnated while China, the US and emerging markets have grown”.
He also expected that the supporters of Britain remaining within the EU structures who talked up the risks of an exit would change their tone once the votes were cast.
However, one of the biggest risks of Brexit might be its impact on other countries in the EU.
“What actually worries people is the possibility that one of the bigger risks of a UK exit is the fact it might empower EU-skeptics elsewhere in Europe and lead to a broader breakup of the EU,” he said.
The global impact of Brexit will however cause the Sterling to weaken significantly and may cause further delay with a US Fed hike and induce additional monetary easing elsewhere.
“However, as mentioned, these concerns are probably overdone and any sell-offs should calm down once rational analysis of Brexit effects is carried out,” he said.
