Australian Investment Blog

BREXIT is finally being taken seriously With the polls sitting at 50-50, it was amazing last week that stock markets were ignoring the possibility of Britain leaving the EU and the contagion risks that would bring into play. This week, things have changed with a bang as is clearly illustrated by the VIX / Fear Index below, which has rallied 65% in only 5 trading days, with the vote in 9 days’ time looming. Markets often go through periods where they are dominated by one topic and BREXIT looks like taking the mantle until the 23rd - remember US rate increases, Donald Trump, Greece, China and even the Scottish referendum etc. As we are sitting on over 35% cash, this volatility obviously makes us lick our lips, in anticipation of opportunities / bargains that may present themselves in June. The VIX (Fear Index) Weekly Chart Firstly, let's briefly consider how BREXIT is unfolding and our interpretation of the likely outcome and of course, potential risks to markets. If Britain leaves the EU, the exact economic damage is impossible to predict, but it will be substantial and may take years to unravel. This enormous economic risk is the backbone of the "Stay” party’s campaign and one that is definitely scarring many voters. Conversely, immigration is the driving force of the "Leave" party and the recent atrocities of Orlando only reinforce the locals' questions around the UK's current policy stance. A quote in today's Guardian reflects how many older Brits are thinking: "Immigration is out of control, the country is a mess and Brussels and the Germans are telling us what to do even though we won two world wars". Last night, the British Pound gyrated between losses of 1% and gains of 0.
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