By: Jeffrey J. Leavitt
On June 23, 2016, in a historical vote, the people of the United Kingdom voted to leave the European Union. The “leave” vote beat the “stay” vote 52%-48%. Not surprising to many, the vote to leave sent shockwaves across world financial markets. In the trading day immediately following the “Brexit”, world markets took a drastic downturn, with equity markets losing more than 2.1 trillion dollars in value. Following the Brexit, the Great Britain Pound also plummeted to its lowest point since the 1980’s.
In the weeks leading up to the vote, world leaders, economists, and financial institutions all turned a wary eye toward the U.K and the looming Brexit vote, asking, “What will happen if the ‘leave’ vote actually wins?” Then the unthinkable happened and the U.K voters decided to cut ties with the E.U., leaving serious questions about the future of the world economy. The idea of what a world looks like without the U.K in the E.U. creates an “uncertainty that businesses don’t wish to see” says Emanuel Adam, the head of policy and trade for BritishAmerican Business.
All Americans, especially those invested in global markets need to pay particularly close attention to the Brexit. Millions of Americans’ retirement and other accounts invested in international equities experienced substantial losses in the days following the Brexit vote. This equity shock has left many Americans worried about another recession.
In 2015, U.S investment in Great Britain topped over $558 billion. That money was invested in everything from banking to manufacturing to real estate. Many large companies with headquarters in the U.K., like Caterpillar, now face an uncertain future as the future of investing in the U.K. becomes less clear.
If one thing is for sure following the Brexit, it is that the future of the world economy is anything but clear. Janet Yellen, the Federal Reserve Board Chair, has even referred to Brexit as a “Lehman Brothers moment,” referencing the financial meltdown of 2008. Only time will tell the true effect the Brexit will have on the world economy and American investors. In the meantime, investors should keep a close eye on the world markets.