NEW YORK Investors wondering how the vote in Britain to leave the European Union will affect their portfolios had a blueprint to follow: the price movement of stocks, bonds and currencies in recent weeks closely tracked polls that swung in the direction of either the “remain” camp or the group pressing for a “leave” result.
The "Brexit" is already delivering a bearish blow to so-called risk assets, which include stocks. Stocks are plunging in Asia and are set to decline elsewhere.
"The market is looking for an an excuse, or trigger, to sell and might well get one" if Brexit voters win, Axel Merk, chief investment officer at Merk Investments said ahead of the vote. "The market believes a potential Brexit is a very serious thing for risk assets."
The historic Brexit, which marks the first time a country has left the E.U., is viewed as the worse-case scenario for global financial markets. The market pain could be steep largely because global markets had bet on Britain voting to stay in the E.U.
Chris Konstantinos, director of international portfolio management at RiverFront Investment Group, said ahead of the vote that the market impact will be "negative everywhere, but acutely felt in the U.K.," where the bulk of the economic damage and uncertainty will be felt.
Already the British pound is retreating. Billionaire investor George Soros says it could drop 15% to 20%. U.K.-based stocks are also expected to suffer sizable declines, especially banks and other financial shares.
Stocks and commodities, such as oil, will likely suffer losses as well, due to market uncertainty and confusion over the potential fallout a ‘leave’ vote would produce.
Given its negative impact on investor sentiment, the Brexit vote likely will benefit investments perceived as a haven from trouble. Money in search of safety will likely rush into government bonds in places like the U.S., Germany and the U.K. The flight from risk would also give gold a big lift, as well. The U.S. dollar would also strengthen versus foreign currencies amid money flows to the safety of the greenback.
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