The message from financial advisers this morning to bewildered small investors is “hold your nerve,” while demanding that central bankers around the world act urgently to calm markets.
Jason Hollands, managing director of wealth management group Tilney Bestinvest, said: “Investors are going to need to hold their nerve through the coming days. Although the scale and rapidity of the slide in sterling is enormous, the UK has previously endured sharp devaluations before, notably following the ejection of the pound from the European Exchange Rate mechanism (ERM) and in the aftermath of the banking crisis. While painful at the time, both were followed by periods of economic expansion.”
The London stock exchange saw dramatic falls this morning, opening down 8%, more than 500 points, with huge stocks such as Lloyds Bank down by a third, and housebuilders suffering even more.
Overnight the pound fell to $1.35 against the dollar from $1.50 on Thursday, while against the euro it is down from €1.30 to €1.24.
At Hargreaves Lansdown, the UK’s biggest financial adviser, investment director Mark Dampier said: “Stay calm.”
He added: “Like ERM, if you have cash this is an opportunity and you would be mad to sell. Many funds will be yielding 5%, so you are paid to be patient. The UK will look attractive from overseas buyers’ point of view.”
But Nigel Green, the boss of deVere Group, one of the biggest advisers to British expats, warned investors that intense market volatility could last for years.
“The world’s currencies, equities and bonds are now on a magical mystery tour – at least in the short term,” he said.
“Brexit-triggered volatility is only just beginning; we can expect it to potentially last up to two years. On Friday, investors around the world will pile into safety and prompt a significant shift in global markets from risky assets to safe havens. The FTSE will tumble, the pound is already in freefall, and investors will be gearing up for probable shifts in the Swiss franc, to the price of gold, and to monetary policies globally.”
Hollands said the majority of financial institutions had been complacent about a remain victory.
“In recent days this conviction appeared to have firmed with a premature rally in sterling and the FTSE 100. Last night’s momentous decision by a majority of the public to vote to leave the EU will send shock waves across the market.
“This is certain to be a day of extreme turbulence on global capital markets with a retreat in equities and a likely spike in safe haven assets such as sovereign bonds and gold.”
But advisers calling for calm point out that more than 70% of FTSE 100 earnings are international in nature, and so are little affected by any weakness in the UK domestic economy stemming from the vote.
Michelle McGrade, chief investment officer of TD Direct Investing, said: “Today we must focus on the fundamentals and remember that the UK is the fifth largest economy in the world and fighting fit. What’s important is that the government acts quickly to stabilise the economy and help restore market confidence.”
