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Follow-Up: Effects of Brexit Three Months Later

October 18, 2016

Union Jack with Brexit Text

Although the process for the United Kingdom to leave the EU has not yet been formally invoked, the recent Brexit vote has already caused major shocks to investors, political observers, and economists. As with any major event, the immediate implications of financial disaster and impending market collapse will tend to subside as the initial dust settles and reality sets in. 

Now that the initial shock is subsiding, investors and stakeholders must now begin the painstaking process of recalibrating their strategies. Three months after the Brexit vote, we’re beginning to see a clearer picture of the scope and reach of the major event. 

Effects of Brexit Will Largely be Contained Within the U.K.

The general consensus is that there will be definite effects that will be heavily felt within the U.K.; however, these effects may well be contained and may not have the global impact that was initially expected. Nonetheless, some initial issues to watch out for include:

  • Diversion of direct foreign investment away from the U.K. (many investors may be hesitant to approach the scene while confusion and uncertainty persists)
  • Immediate and sharp decline/depreciation of the sterling
  • Decreases in U.K. GDP, growth, and productivity
  • Difficulty for the U.K. in negotiating better tariffs, which in turn can lead to weaker property investment flows, and difficulty in controlling deficits

While investors should definitely keep these effects on their radar, many analysts postulate that the effects of Brexit will mostly be self-contained because:

  1. Falls in U.K. liquidity will not have global repercussions
  2. Investment flows that are diverted from the U.K. will end up benefiting other economies, especially in the Eurozone

Thus, any crashes, such as a future mortgage crisis in the U.K., would of course affect global markets; however, it would likely not carry the same degree of global contagion as did the U.S. subprime mortgage crisis, for example. 

Effects of Brexit on Market Access

One of the most hotly debated subjects right now in relation to the Brexit scenario is the question of access to markets. In particular, there is much speculation as to what will happen with companies who have teams and resources in London. For many organizations, access to European markets depends on their presence in London.

Some argue that it’s entirely possible to relocate elsewhere, especially given the fact that EU companies are not barred from raising money through banks outside the bloc. Others argue that the agility and efficiency of London as a financial center is essential for some company operations. 

For instance, Robert Rooney, CEO of Morgan Stanley International, states, “The efficiency of London as a global capital market will be very difficult for Europe to replace.” These concerns may hold some weight, since London is a global financial center, not just a European one. 

Various Other Effects of Brexit

There is a hodgepodge of smaller, more nuanced effects of Brexit that will need to be worked out in the long run. These include:

  • U.K. airlines’ access to the European aviation market in the near future. Post-Brexit air traffic rights for the U.K. are important to consider, as they involve the EU’s “four key freedoms” (movement of capital, goods, services and people)
  • Complex effects on intellectual property rights, especially in light of the EU’s Unified Patent Court system
  • Daily commute and immigration concerns: Protests are already being staged at the Northern Irish border, pointing out the various impracticalities that might arise for commuters once the exit occurs. Again, global effects might not be of immediate concern here; however, if such issues interfere with day-to-day operations, it could spell some impediments for company growth and shareholder interests

Strategies Moving Forward

Thus, a common-sense approach for shareholders would be to first concentrate efforts on any immediate exigencies affecting operations within key places like London. From there, careful consideration of effects of Brexit on outside markets will help to prepare investors for resulting instabilities. This highlights the importance of creative data analysis to help build portfolios that are increasingly resistant to drastic fluctuations. 

Major events such as Brexit have the capacity to create long-lasting effects that will require much time and resources to fully address. If you have any questions regarding global securities and shareholder issues, contact us at Kessler Topaz. Our team of attorneys is dedicated to helping clients obtain legal recovery for large-scale disputes and violations in complex global securities claims. Specifically, our team has direct experience in navigating the complicated web of judicial systems operating in the U.K.