There is a little over 6 weeks before the Brexit date is reached. Without a deal the UK risks falling out of the European Union without trade deals, or a solution on the border of Ireland. This would no doubt cause a lot of volatility in UK assets up to the departure date and beyond depending on the outcome. Since the vote to leave the EU in June of 2016 we have seen the effects of the decision on the currency, markets, and economic numbers. As an investor with a longer horizon, how should you look at these events as they unfold and uncertainty depresses prices.
Looking at the headlines it seems the Eurozone is the obvious winner if the UK suffers a hard exit. Goods from the UK to mainland Europe are small in comparison and many companies have already started to move staff and jobs out of Britain. Looking at the overall economic growth globally the Eurozone might not fare as well as many expect. Aside from the Brexit uncertainty global growth is slowing down and the Eurozone is no immune. In the event of a slowdown the UK is in a better position to provide stimulus to their economy and the depressed Pound will help with exports.
The Eurozone didn't see the economic decline that the UK did after the vote to leave, but since the slowdown started, the Euro countries were hit hard by their intertwined bonds and banking system and the end of massive QE stimulus. One of the major themes we are following is European Disunity, a slowdown in growth and the lack of political will for more monetary accommodation, many of the countries are starting to undertake fiscal stimulus. This is a good sign that the European governments are aware of the problems, but it raises the concerns about which countries can afford to add a lot of stimulus and which cannot. This could create the two speed Europe we have seen in the past, only this time the ECB could have mixed data on their hands.
While Brexit is not great for the UK and will see volatility in the coming months, take into account the larger economic trends and who would be most likely to manage and come out of an economic slowdown quickly, should one occur. In this scenario the UK looks much more nimble and has the ability for more monetary and fiscal stimulus. Now would be the time to sit back and wait to start buying.